Reserve requirements are the amount of money that banks must hold to cover customer deposits and liabilities. The reserve is meant to protect banks against sudden withdrawals. Reserve requirements are set by the Fed’s board of governors. In addition to reserve requirements, the board has two other monetary tools — open market operations and the discount rate.
The reserve requirement amount is adjusted each year. Banks with deposits of less than $16 million are considered to have no reserve requirements. Those with $16 million to $122.3 million in deposits have 3%, and those with over $122.3 million have 10%.
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