The Federal Reserve Board’s decision announced March 15 to take Regulation D reserve requirements down to zero to help maximize banks’ ability to lend during the current coronavirus pandemic is out for public comment until May 26.
This elimination of any reserving requirement, which will apply March 26 (Thursday) – the beginning of the next reserve maintenance period – is further discussed in an interim final rule published Tuesday in the Federal Register.
More than 2,500 depository institutions maintain, in aggregate, $150 billion in account balances to satisfy reserve balance requirements, the Fed noted. It said all depository institutions, including small depository institutions, will benefit from the elimination of reserve requirements. “There are no new reporting, recordkeeping, or other compliance requirements associated with the interim final rule,” it stated.
As background, the Fed noted that reserve requirements have played a central role in the implementation of monetary policy for many years by creating a stable demand for reserves. In January 2019, the Federal Open Market Committee (FOMC), the Fed’s monetary policy setting arm, announced its intention to implement monetary policy in an ample reserves regime. “Reserve requirements do not play a significant role in this operating framework,” the notice states.
“The Board is requesting comment on all aspects of the rule and will make any changes that it considers appropriate or necessary after review of any comments received,” it states.
Reg lookup: Regulation D: Reserve Requirements of Depository Institutions