An increase in the reserve ratio would mean that the Bank has to keep more money "in reserve" against the loans it makes.
<span>Ultimately that would mean a) there is less money available for the bank to lend b) that it would be more expensive to borrow for these reasons: </span> <span>- scarcity of funds available </span> <span>- the bank will pass on the cost of retaining capital as reserves </span> <span>- it happens during times of lowered risk appetite so banks will charge more for perceived risk.</span>
