reserve requirements - Investment & Finance Definition
Requirements that regulate the amount of reserves that banks and other depository institutions must hold against customer deposits. A lower reserve requirement allows more deposit and loan expansion, and a higher reserve ratio permits less expansion. The Federal Reserve sets reserve requirements, within limits specified by law. Different legal requirements exist for different depository institutions, such as commercial banks, savings banks, savings and loan associations, credit unions, some industrial loan banks, U.S. agencies, and branches of foreign banks that have transaction accounts or non-personal time deposits.