Banking · Core
Reserve Requirement
A reserve requirement is the fraction of deposits a bank must hold as reserves — a tool that is now often zero in the US, with liquidity rules doing the real work.
Definition
Historically, cash/reserves vs deposits. The Fed set reserve ratios to 0% in 2020. LCR, NSFR, and IORB/ON RRP now do more of the liquidity steering. Other countries still use RR as a macroprudential lever.
Why it matters
People still tell the money-multiplier story with RR. In ample-reserves regimes the binding constraints are different.
Case
EM central banks hiking reserve ratios to drain local liquidity without the headline policy rate. The RR was the tightening.
How to read it
Whether RR is binding in that system. In the US, look at IORB, ON RRP, and LCR before you quote a 10% textbook ratio.
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