Reserve Requirement
A reserve requirement is the proportion of its deposits a bank must hold rather than lend out. In the United States that proportion has been zero since 26 March 2020, so the textbook money-multiplier story no longer describes how US bank lending is constrained.
Also called: reserve ratio
A reserve requirement obliges a depository institution to hold a set fraction of specified deposit liabilities as reserves — historically as vault cash or as a balance at the central bank — rather than deploying it. It is the mechanism behind the money multiplier taught in most introductory economics courses, in which a required ratio caps how much deposit money the banking system can create from a given base.
The Federal Reserve Board reduced reserve requirement ratios to zero percent effective 26 March 2020, eliminating them for all liability categories, and they remain at zero. That is not a technicality. It means the binding constraints on a US bank’s balance sheet today are capital adequacy, the liquidity coverage and net stable funding requirements, supervisory expectations and its own funding costs — none of which is a reserve requirement. Banks still hold very large reserve balances at the Federal Reserve, but they hold them because reserves are the settlement asset and are remunerated, not because a ratio compels it.
Other jurisdictions have not all followed. Several central banks still operate a positive required reserve ratio, sometimes as an active policy tool, so a statement about “the reserve requirement” needs a country attached to it before it means anything.
In practice
Repeating the money multiplier as a description of current US banking is wrong, and the error is common in payments material. It is also unrelated to the "100% reserved" claims made by stablecoin issuers and by Wyoming SPDIs: those are contractual or charter conditions about asset backing, not monetary-policy reserve requirements.
Example
A US bank takes a $10m deposit in 2026. No portion of it is required to be held in reserve. Whether the bank can lend against it is decided by its capital ratios, its liquidity position and its own risk appetite — the reserve requirement contributes nothing to the answer.
Commonly confused with
| Term | How it differs |
|---|---|
| Reserve Account | A reserve account in payments is a balance an acquirer or processor withholds against future chargebacks. It has nothing to do with central bank reserve requirements. |
| Regulatory Capital | Capital is loss-absorbing funding on the liabilities side. A reserve requirement was a constraint on the asset side. Capital requirements are very much still in force. |
| Proof of Reserves | Proof of reserves is an attestation that a crypto business holds the assets it says it does. It is a disclosure practice, not a regulatory ratio. |
See also
- Reserve AccountA reserve account holds funds a bank, acquirer or partner keeps back against future chargebacks, refunds or unsettled exposure, released on an agreed schedule. The money is economically yours, but it is out of your hands while it is held.
- Regulatory CapitalRegulatory capital is the minimum capital a licensed financial firm must hold, and keep holding, calculated by a method the regulator prescribes rather than by ordinary accounting. It is a continuing condition of the license, tested at application and at every examination afterwards.
- Bank CharterA bank charter is the authorisation that makes an institution a bank — granted in the United States either by a state banking department or by the federal Office of the Comptroller of the Currency. Deposit insurance and access to Federal Reserve services are separate approvals, not things the charter brings with it.
- Special Purpose Depository InstitutionA Special Purpose Depository Institution is a Wyoming state bank charter for institutions that take deposits and custody digital assets without lending out customer fiat. It is a bank charter with restricted powers — not a national charter, not automatically FDIC-insured, and with no guaranteed Federal Reserve access.
- Proof of ReservesProof of reserves is published evidence that an issuer or exchange holds the assets it says it holds — typically a third-party verification report on holdings as at a single date, sometimes paired with a cryptographic exercise letting customers check that their own balance was counted. It is not an audit.
Go deeper
Regulatory information checked: 23/Sep/2026