Reserve Requirement

The fraction of deposits banks must hold rather than lend out.

The reserve requirement is the portion of customer deposits a bank must keep on hand or at the central bank rather than lend. Lowering it frees banks to lend more, expanding the money supply. Many central banks now set it low; the Fed cut its reserve requirement to zero in 2020.

By cutting the reserve requirement, the central bank let banks lend out more of their deposits.