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Is There Any Rationale for Reserve Requirements?

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Reserve requirements have been part of the regulatory apparatus of banking in the United States for more than 150 years. Currently, however, more than half of all depository institutions are exempt from the regulation, and a growing number of others meet their requirements with voluntary holdings of vault cash. In searching for a contemporary rationale for reserve requirements, the author finds little to recommend them other than an aversion to complete reliance on the discount window for meeting banks' day-to-day liquidity needs.

Suggested citation: Stevens, Edward. “Is There Any Rationale for Reserve Requirements?,” Federal Reserve Bank of Cleveland, Economic Review, vol. 27, no. 3, pp. 2-17, 09.01.1991.

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