Reserve Requirements in Banking System Explained

What are reserve requirements in the banking system?

True or False: Reserve requirements refer to the regulation that commercial banks must maintain a certain percentage of the money customers deposit as reserves each night.

Answer:

True

In the banking system, reserve requirements are regulations that require commercial banks to maintain a certain percentage of customer deposits as reserves. These reserves must be held in the bank's vault or at the closest Federal Reserve bank.

Reserve requirements serve as a way to ensure that banks have enough liquidity to meet depositor demands and maintain stability in the banking system.