Reserve Requirements

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DEFINITION of 'Reserve Requirements'

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."

INVESTOPEDIA EXPLAINS '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.

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RELATED FAQS
  1. What does a large multiplier effect signify?

    The multiplier effect depends on banks' reserve requirements. In macroeconomics, if a country exhibits a large multiplier ... Read Full Answer >>
  2. What are the implications of a low Federal Funds Rate?

    The federal funds rate is the interest rate at which banks borrow reserves from one another. A low federal funds rate implies ... Read Full Answer >>
  3. How do central banks inject money into the economy?

    Central banks use several different methods to increase (or decrease) the amount of money in the banking system. These actions ... Read Full Answer >>
  4. 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 Full Answer >>
  5. Does raising the minimum wage increase inflation?

    There are conflicting views on whether raising the minimum wage increases inflation. Tied to this is the question of what ... Read Full Answer >>
  6. How do open market operations affect the money supply of an economy?

    The open market operations conducted by the Federal Reserve affect the money supply of an economy through the buying and ... Read Full Answer >>
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