Reserve Requirements
a.k.a. Reserve Requirement Ratio, RRR, Required reserves
The share of customer deposits a central bank requires banks to keep on hand rather than lend out.
Reserve requirements set how much of their deposits banks must hold as cash or at the central bank instead of lending. A 10% ratio means that for every 100 dollars deposited, 10 must stay put.
Raising the ratio squeezes lending; cutting it frees up money to lend. China's PBOC adjusts its reserve requirement ratio regularly as a policy tool. The US Fed, by contrast, cut its requirement to zero in 2020 and now steers mainly through interest on reserves.
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