Reserve Requirements for Depository Institutions (, Regulation D) is a

Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...

regulation governing the reserves that banks and credit unions keep to satisfy depositor withdrawals. Although the regulation still requires banks to report the aggregate balances of their deposit accounts to the Federal Reserve, most of its provisions are inactive as a result of policy changes during the

COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identified ...

Reserves

Until March 2020, Regulation D required depository institutions to keep a minimum amount of reserves in order to meet immediate withdrawals against their transaction accounts. The minimum reserve percentage was determined separately for each institution, starting at zero for small banks and increasing to 10% of transaction account deposits for the largest banks. An institution could satisfy the requirement with vault cash and with deposits at a

Federal Reserve Bank A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve A ...

, or a bank that acted as a Federal Reserve

correspondent A correspondent or on-the-scene reporter is usually a journalist or commentator for a magazine, or an agent who contributes reports to a newspaper, or radio or television news, or another type of company, from a remote, often distant, locat ...

. After the

financial crisis of 2007–08 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline o ...

, the Federal Reserve System began to adopt an "ample-reserves" approach, in which the Federal Reserve Banks pay their member banks interest on reserves deposited in excess of the reserve requirement. This system went into full force during the coronavirus pandemic and the reserve requirement was reduced to zero. The regulation allows reserve requirements to be reintroduced, but a more sophisticated regime based on the

Basel III Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response ...

accord now governs bank liquidity.

Savings transaction limit

Regulation D was known directly to the public for its former provision that limited withdrawals or outgoing transfers from a

savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compon ...

account. No more than six such transactions per statement period could be made from an account by various "convenient" methods, which included checks, debit card payments, and automatic transactions such as

automated clearing house An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. Th ...

transfers or

electronic bill payment Electronic bill payment is a feature of online, mobile and telephone banking, similar in its effect to a giro, allowing a customer of a financial institution to transfer money from their transaction or credit card account to a creditor or vendor ...

. Institutions were required to warn any customer that exceeded the limit and to freeze, close or reclassify accounts that did so repeatedly. The limit on withdrawals was established during the Great Depression of the 1930s to help improve bank stability. It was amended in 2009 to allow greater freedom for the depositor. Beforehand, the limit was six withdrawals per month if the funds remained within the same institution (e.g., transfer to checking), but was only three drafts where the funds left the institution (e.g., check,

ACH Network In the United States, the ACH Network is the national automated clearing house (ACH) for electronic funds transfers established in the 1960s and 1970s. It processes financial transactions for consumers, businesses, and federal, state, and loca ...

, or card based purchase). The Federal Reserve discontinued the transaction limit in April 2020, stating that the elimination of required reserves had made the distinction between checking and savings accounts unimportant. Additionally, policies put in place during the

coronavirus pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identifie ...

had increased depositors' reliance on convenient transfers. The Federal Reserve's action allowed banks to relax their limits on savings account withdrawals, but did not require them to do so.

References

External links

FRB 12 CFR 204 ("Regulation D")

Regulation D of the Federal Reserve

{{Bank regulation in the United States Bank regulation in the United States

Reserves

Savings transaction limit

See also

References

External links