A portion of the revenue generated from a merchant's credit card transactions, which is held in reserve by the acquiring bank to cover possible future disputed charges, fees and other expenses. After a predetermined time, reserves are released from these accounts and deposited into the merchant's checking account, usually with no interest accumulated.
A type of credit enhancement used in some asset backed securities. The reserve account may be created by an initial deposit from the seller and may be augmented over time by the application of funds from excess servicing income. Credit is enhanced because withdrawals from the reserve account are made to reimburse investors when excess servicing is insufficient to cover charge -offs. Until needed, funds in a reserve account are invested.