Federal Reserve Reduces Bank Reserve Requirement Ratios to Zero Percent
The Federal Reserve has reduced the reserve requirement ratios of commercial banks to zero percent.
As “effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook”, the Board says they need to ensure banks can “lend to households and businesses who are affected by the coronavirus”. The Board says the move “will help to support lending to households and businesses” by making available “an estimated $200 billion.”
Commercial banks are required to maintain a cash balance of reserves based on their total deposits and other transaction totals. Previously, banks with net transaction balances above $127.5 million were subject to a reserve requirement ratio of 10 percent, between $16.9 and $127.5 million were subject to a reserve requirement ratio of 3 percent, and less than $16.9 million of net transactions were subject to a reserve requirement ratio of zero percent. After today’s reduction, all banks now need to maintain zero reserves.