Replacing Reserve Requirements

The significance of the Federal Reserve System’s reserve requirements has been fading for the last 50 years, moving toward more universal application at less onerous rates. At the outbreak of World War II, the requirements applied only to national banks and to state-chartered banks that chose to be members of the System. These institutions had to hold non-interest-bearing deposits at a Reserve Bank equal to 14 to 26 percent (depending on the bank’s location) of their transaction deposit liabilities plus 3 percent of their time deposits. This was in addition to coin and currency that banks kept in their own vaults.