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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