Key points
- Tool to control money supply.
- US set to 0% in 2020, rarely used now.
- Other countries still actively use this tool.
Example
A move from 10% to 12% reserve requirement would force banks to hold more reserves, tightening credit availability.
In history
The Fed cut reserve requirements to 0% in March 2020 to support bank lending during the pandemic liquidity crunch.
Related terms