Reserve Requirements

What are 'Reserve Requirements'

Reserve requirements are requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve bank.

Also known as "required reserves."

BREAKING DOWN 'Reserve Requirements'

Set by the Fed's board of governors, reserve requirements are one of the three main tools of monetary policy. The other two tools are open market operations and the discount rate.

RELATED TERMS
  1. Reservable Deposit

    A bank deposit subject to reserve requirements. Reserve requirements ...
  2. Working Reserves

    Reserves held by banks above the required minimum level - or ...
  3. Wednesday Scramble

    Last-minute buying and selling of eligible reserves that takes ...
  4. Adjustment Credit

    A short-term loan made by a Federal Reserve Bank to a smaller ...
  5. Net Borrowed Reserves

    A statistic released in weekly Federal Reserve data showing the ...
  6. International Reserves

    Any kind of reserve funds that can be passed between the central ...
Related Articles
  1. Personal Finance

    The Banking System: Federal Reserve System

    ByStephen D. Simpson, CFA The central bank of the United States is the Federal Reserve System. The Federal Reserve System came into being in 1913, after the passage of the Federal Reserve Act ...
  2. Economics

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?
  3. Personal Finance

    How The Federal Reserve Manages Money Supply

    Find out how the Fed manages bank reserves and this contributes to a stable economy.
  4. Economics

    Explaining the Federal Discount Rate

    The federal discount rate is the rate at which eligible banks or other depository institutions can borrow funds from a Federal Reserve bank.
  5. Economics

    How The Federal Reserve Manages Money Supply

    The Fed's three main tools are manipulating reserve requirements, changing the discount rate, and open-market operations.
  6. Economics

    Explaining the Federal Reserve System

    The Federal Reserve System is the central bank of the United States. It regulates monetary policy and supervises the nation’s banking system.
  7. Economics

    How Do Central Banks Inject Money Into The Economy?

    Central banks inject money into the banking system, and remove money from it, through monetary policy actions.
  8. Economics

    Understanding How the Federal Reserve Creates Money

    Read about how the Federal Reserve actually targets and creates new money in the economy, and find out why the savings and loans system magnifies this process.
  9. Economics

    A Primer On Reserve Currencies

    For nearly a century, the U.S. dollar has served as the world's premier reserve currency, but the future is uncertain.
  10. Stock Analysis

    How Does Reserve Work and Make Money?

    Learn what Reserve is and how it makes money through securing reservations at fine dining establishments for clients willing to pay for its premium service.
RELATED FAQS
  1. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  2. What happens if the Federal Reserve lowers the reserve ratio?

    Learn about the Federal Reserve's monetary policy and the tools it uses to control it. Understand what happens if the Federal ... Read Answer >>
  3. What are the implications of a high Federal Funds Rate?

    Learn the implications of a high federal funds rate, which include constriction of the money supply, a stronger dollar and ... Read Answer >>
  4. How must banks use the deposit multiplier when calculating their reserves?

    Explore the relationship between the deposit multiplier and the reserve requirement, and learn how this limits the extent ... Read Answer >>
  5. How is the Federal Reserve audited?

    Learn how the Federal Reserve gets audited. Due to gridlock, the Federal Reserve has been forced to take on the role of stimulating ... Read Answer >>
  6. What impact does the Federal Reserve have on a bank's profitability?

    Learn how the Federal Reserve impacts a bank's profitability with its influence on the discount rate, federal funds rate ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center