It’s an eye-opener for consumers to learn that banks don’t match their savings account deposits dollar-for-dollar (euro for euro, etc.) in a vault. As the reality of this alarming reality spreads, the risks of leaving one’s money in a bank become clearer.
In this article, we’ll explore the reserve ratio and how it is playing into the failures that have plagued the banking industry, particularly in the United States, as well as what it all means for consumer deposits.
The reserve requirement ratio represents the percentage of customer deposits that banks must keep in vault cash, aka currency on hand, or at the Fed. They can’t lend it, invest it or do anything else with it to meet this standard.
Central bankers can and do manipulate the reserve requirement ratio to increase the money supply circulating in the economy.
The reserve ratio, which could also be called the cash reserve ratio, is set by a country’s central bank, like the Federal Reserve in the United States.
As a historical example of how this worked: when the reserve requirement ratio was 10% (the pre-2020 threshold for large US banks), a customer depositing $1,000 meant the bank had to earmark $100 in reserves. The remaining $900 could be lent out. Today in the US, that reserve floor is zero — meaning theoretically the entire $1,000 could be lent out with no mandatory reserve held.
What does this bank do with the other $900? Lend it to customers in the form of mortgage loans, personal loans, small business loans, etc. The banks earn more from interest on those loans than it would leaving it sitting idle in the vault. You can pretty much guarantee that the bank is generating higher interest from those loans than customers would by socking away their cash in a savings account.
Once again , the bank reserves must be in the vault each day at the close of business or in the nearby Federal Reserve bank. This is to ensure that there are theoretically sufficient reserves so the bank won’t buckle under the pressure of a potential run. This rule applies to –
- Commercial banks
- Savings banks
- Thrift Institutions
- Credit Unions
The weaker the reserve requirement ratio, the greater the chance of a run on a bank, as evidenced by the fallout at Silicon Valley Bank. The higher the reserve requirement, the tougher it is for small and medium-sized banks to compete with loans because they have to keep more of their deposits in reserves.
In the United States, the reserve requirement ratio for banks is zero percent, a threshold that was set by the Federal Reserve board of governors in the wake of the health crisis. More about that later.
The History of Reserve Requirements
1860s — The National Bank Act
Reserve requirements date back to the 1860s when the National Bank Act came into effect. The core idea: banks should keep a fraction of deposits in a safe place to survive withdrawal pressure.
1913 — The Federal Reserve Changes Everything
With the formation of the Fed in 1913, reserve requirements took on a new role. In 1917, requirements were set at 13%, 10%, and 7% depending on bank type. The Fed’s ability to act as lender of last resort reduced the existential importance of reserve ratios.
Pre-2020 — The Three-Tier US System
Before the 2020 change, US reserve requirements followed a tiered structure:
- 10% for banks with deposits above $127.5 million
- 3% for banks with deposits between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
March 26, 2020 — The Fed Goes to Zero
In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent for all depository institutions, effective March 26, 2020. This remains the current policy.
Global Reserve Requirements Compared
Not every country runs on zero reserves. Here is how major economies compare:
👉 Quick takeaway: Reserve requirements vary widely across countries — the US currently requires 0%, while some emerging markets enforce rates of 4–7% to manage liquidity risk.
| Country / Region | Reserve Requirement | Applied To | Notes |
|---|---|---|---|
| United States |
0% ⚠️ No minimum required |
All deposit tiers | Reduced to 0% on March 26, 2020 by the Fed |
| European Union | 1% | Short-term deposits | Set by the ECB |
| Japan | 0.8% | Varies by deposit type | Set by Bank of Japan |
| Saudi Arabia |
7% 🏆 Highest in this table |
Demand deposits | Set by SAMA |
| UAE | 1% | Demand deposits | Set by Central Bank of UAE |
| India | ~4% (CRR) | Net demand and time liabilities |
Set by RBI ⚠️ Also has a Statutory Liquidity Ratio |
Key insight: The US is among the most permissive in the world. Countries like Saudi Arabia require banks to hold 7x more in reserves than US banks are legally required to hold today.
Why is the US Reserve Requirement Zero?
The U.S. reserve requirement is currently zero percent across all deposit tiers and all depository institutions. The Federal Reserve’s Board of Governors reduced reserve requirement ratios to zero percent effective March 26, 2020, applying the change universally — not just to non-transactional accounts. Banks may still hold voluntary excess reserves, but there is no regulatory minimum floor. The catalyst for this severe cut was the COVID-19 pandemic, in response to which the Fed wanted to encourage banks to lend to one another.
This “requirement” paves the way for banks to hold zero reserves for bank deposits in the vault. It exacerbates the issues inherent with fractional reserve banking to begin with. With the recent failure of SVB and a handful of other banks, the writing is on the wall in terms of the risks associated with a zero reserve requirement.
Prior to the latest cut, the reserve requirements weren’t much better —
- 10% for banks whose deposits surpassed $127.5 million. To recap, for every $1,000 deposited, banks were only required to have $100 in reserves.
- 3% for banks whose deposits ranged between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
What Does Zero Reserve Requirement Mean for Your Deposits?
Here is what the 0% reserve requirement means in practical terms for everyday depositors:
Scenario: You deposit $10,000 at a US bank today.
- Required reserves the bank must hold: $0
- Amount the bank can legally lend out: up to $10,000
- FDIC insurance covers: up to $250,000 per depositor per institution (for eligible accounts)
- What protects you if the bank fails: FDIC insurance, not reserves
How to Evaluate Your Deposit Safety
- Check if your bank is FDIC-insured (fdic.gov)
- Confirm your total deposits per institution stay under the $250,000 FDIC limit
- If deposits exceed $250,000, consider spreading across multiple FDIC-insured institutions
- Review your bank’s capital adequacy ratios (Tier 1 capital ratio) as a proxy for financial health — the reserve ratio no longer serves this function
- Consider diversifying a portion of savings into assets not subject to fractional reserve risk
What Replaced Reserve Requirements as a Safety Mechanism?
The Fed now relies on three other tools to manage bank liquidity:
- Interest on reserve balances (IORB): Banks earn interest for holding voluntary reserves at the Fed, incentivizing them to keep buffers
- Open market operations: The Fed buys and sells securities to manage money supply
- Discount window lending: Banks can borrow from the Fed in a liquidity crunch
Frequently Asked Questions
Do US banks have to hold any reserves at all?
No legal minimum exists since March 26, 2020. However, banks voluntarily hold excess reserves at the Federal Reserve, partly because the Fed pays interest on those balances (IORB).
Is my money safe in a US bank with 0% reserve requirement?
Your deposits up to $250,000 per institution are protected by FDIC insurance, not by reserve requirements. The reserve ratio was never the primary consumer protection mechanism — deposit insurance is.
Which country has the highest reserve requirement?
Among major economies, Saudi Arabia’s 7% rate is among the higher requirements. Some emerging market central banks maintain requirements above 10%.
Did the Fed ever raise the reserve requirement back above zero?
No. As of the evidence available, the 0% rate set on March 26, 2020 remains in effect for all US depository institutions.
The Bottom Line on Reserve Requirements
The reserve requirement ratio for US banks is zero percent — and has been since March 26, 2020. That does not mean your deposits are unprotected, but it does mean the protection comes from FDIC insurance and the Fed’s broader toolkit, not from mandatory cash reserves sitting in a vault.
For depositors, the practical takeaways are:
- Verify your bank is FDIC-insured
- Keep deposits under $250,000 per institution to stay within coverage limits
- Understand that bank solvency today depends on capital ratios and Fed backstops, not reserve floors
- If you want exposure to assets that operate outside the fractional reserve system, decentralized protocols like Liquid Loans use over-collateralization as a structural alternative
The reserve requirement ratio is one number, but understanding it opens a window into how the entire modern banking system is structured — and what your real risks are as a depositor.
It’s an eye-opener for consumers to learn that banks don’t match their savings account deposits dollar-for-dollar (euro for euro, etc.) in a vault. As the reality of this alarming reality spreads, the risks of leaving one’s money in a bank become clearer.
In this article, we’ll explore the reserve ratio and how it is playing into the failures that have plagued the banking industry, particularly in the United States, as well as what it all means for consumer deposits.
What is the Reserve Requirement Ratio?
The reserve requirement ratio represents the percentage of customer deposits that banks must keep in vault cash, aka currency on hand, or at the Fed. They can’t lend it, invest it or do anything else with it to meet this standard.
Central bankers can and do manipulate the reserve requirement ratio to increase the money supply circulating in the economy.
The reserve ratio, which could also be called the cash reserve ratio, is set by a country’s central bank, like the Federal Reserve in the United States.
As a historical example of how this worked: when the reserve requirement ratio was 10% (the pre-2020 threshold for large US banks), a customer depositing $1,000 meant the bank had to earmark $100 in reserves. The remaining $900 could be lent out. Today in the US, that reserve floor is zero — meaning theoretically the entire $1,000 could be lent out with no mandatory reserve held.
What does this bank do with the other $900? Lend it to customers in the form of mortgage loans, personal loans, small business loans, etc. The banks earn more from interest on those loans than it would leaving it sitting idle in the vault. You can pretty much guarantee that the bank is generating higher interest from those loans than customers would by socking away their cash in a savings account.
Once again , the bank reserves must be in the vault each day at the close of business or in the nearby Federal Reserve bank. This is to ensure that there are theoretically sufficient reserves so the bank won’t buckle under the pressure of a potential run. This rule applies to –
- Commercial banks
- Savings banks
- Thrift Institutions
- Credit Unions
The weaker the reserve requirement ratio, the greater the chance of a run on a bank, as evidenced by the fallout at Silicon Valley Bank. The higher the reserve requirement, the tougher it is for small and medium-sized banks to compete with loans because they have to keep more of their deposits in reserves.
In the United States, the reserve requirement ratio for banks is zero percent, a threshold that was set by the Federal Reserve board of governors in the wake of the health crisis. More about that later.
The History of Reserve Requirements
1860s — The National Bank Act
Reserve requirements date back to the 1860s when the National Bank Act came into effect. The core idea: banks should keep a fraction of deposits in a safe place to survive withdrawal pressure.
1913 — The Federal Reserve Changes Everything
With the formation of the Fed in 1913, reserve requirements took on a new role. In 1917, requirements were set at 13%, 10%, and 7% depending on bank type. The Fed’s ability to act as lender of last resort reduced the existential importance of reserve ratios.
Pre-2020 — The Three-Tier US System
Before the 2020 change, US reserve requirements followed a tiered structure:
- 10% for banks with deposits above $127.5 million
- 3% for banks with deposits between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
March 26, 2020 — The Fed Goes to Zero
In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent for all depository institutions, effective March 26, 2020. This remains the current policy.
Global Reserve Requirements Compared
Not every country runs on zero reserves. Here is how major economies compare:
Key insight: The US is among the most permissive in the world. Countries like Saudi Arabia require banks to hold 7x more in reserves than US banks are legally required to hold today.
Why is the US Reserve Requirement Zero?
The U.S. reserve requirement is currently zero percent across all deposit tiers and all depository institutions. The Federal Reserve’s Board of Governors reduced reserve requirement ratios to zero percent effective March 26, 2020, applying the change universally — not just to non-transactional accounts. Banks may still hold voluntary excess reserves, but there is no regulatory minimum floor. The catalyst for this severe cut was the COVID-19 pandemic, in response to which the Fed wanted to encourage banks to lend to one another.
This “requirement” paves the way for banks to hold zero reserves for bank deposits in the vault. It exacerbates the issues inherent with fractional reserve banking to begin with. With the recent failure of SVB and a handful of other banks, the writing is on the wall in terms of the risks associated with a zero reserve requirement.
Prior to the latest cut, the reserve requirements weren’t much better —
- 10% for banks whose deposits surpassed $127.5 million. To recap, for every $1,000 deposited, banks were only required to have $100 in reserves.
- 3% for banks whose deposits ranged between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
What Does Zero Reserve Requirement Mean for Your Deposits?
Here is what the 0% reserve requirement means in practical terms for everyday depositors:
Scenario: You deposit $10,000 at a US bank today.
- Required reserves the bank must hold: $0
- Amount the bank can legally lend out: up to $10,000
- FDIC insurance covers: up to $250,000 per depositor per institution (for eligible accounts)
- What protects you if the bank fails: FDIC insurance, not reserves
How to Evaluate Your Deposit Safety
- Check if your bank is FDIC-insured (fdic.gov)
- Confirm your total deposits per institution stay under the $250,000 FDIC limit
- If deposits exceed $250,000, consider spreading across multiple FDIC-insured institutions
- Review your bank’s capital adequacy ratios (Tier 1 capital ratio) as a proxy for financial health — the reserve ratio no longer serves this function
- Consider diversifying a portion of savings into assets not subject to fractional reserve risk
What Replaced Reserve Requirements as a Safety Mechanism?
The Fed now relies on three other tools to manage bank liquidity:
- Interest on reserve balances (IORB): Banks earn interest for holding voluntary reserves at the Fed, incentivizing them to keep buffers
- Open market operations: The Fed buys and sells securities to manage money supply
- Discount window lending: Banks can borrow from the Fed in a liquidity crunch
Frequently Asked Questions
Do US banks have to hold any reserves at all?
No legal minimum exists since March 26, 2020. However, banks voluntarily hold excess reserves at the Federal Reserve, partly because the Fed pays interest on those balances (IORB).
Is my money safe in a US bank with 0% reserve requirement?
Your deposits up to $250,000 per institution are protected by FDIC insurance, not by reserve requirements. The reserve ratio was never the primary consumer protection mechanism — deposit insurance is.
Which country has the highest reserve requirement?
Among major economies, Saudi Arabia’s 7% rate is among the higher requirements. Some emerging market central banks maintain requirements above 10%.
Did the Fed ever raise the reserve requirement back above zero?
No. As of the evidence available, the 0% rate set on March 26, 2020 remains in effect for all US depository institutions.
The Bottom Line on Reserve Requirements
The reserve requirement ratio for US banks is zero percent — and has been since March 26, 2020. That does not mean your deposits are unprotected, but it does mean the protection comes from FDIC insurance and the Fed’s broader toolkit, not from mandatory cash reserves sitting in a vault.
For depositors, the practical takeaways are:
- Verify your bank is FDIC-insured
- Keep deposits under $250,000 per institution to stay within coverage limits
- Understand that bank solvency today depends on capital ratios and Fed backstops, not reserve floors
- If you want exposure to assets that operate outside the fractional reserve system, decentralized protocols like Liquid Loans use over-collateralization as a structural alternative
The reserve requirement ratio is one number, but understanding it opens a window into how the entire modern banking system is structured — and what your real risks are as a depositor.
It’s an eye-opener for consumers to learn that banks don’t match their savings account deposits dollar-for-dollar (euro for euro, etc.) in a vault. As the reality of this alarming reality spreads, the risks of leaving one’s money in a bank become clearer.
In this article, we’ll explore the reserve ratio and how it is playing into the failures that have plagued the banking industry, particularly in the United States, as well as what it all means for consumer deposits.
What is the Reserve Requirement Ratio?
The reserve requirement ratio represents the percentage of customer deposits that banks must keep in vault cash, aka currency on hand, or at the Fed. They can’t lend it, invest it or do anything else with it to meet this standard.
Central bankers can and do manipulate the reserve requirement ratio to increase the money supply circulating in the economy.
The reserve ratio, which could also be called the cash reserve ratio, is set by a country’s central bank, like the Federal Reserve in the United States.
As a historical example of how this worked: when the reserve requirement ratio was 10% (the pre-2020 threshold for large US banks), a customer depositing $1,000 meant the bank had to earmark $100 in reserves. The remaining $900 could be lent out. Today in the US, that reserve floor is zero — meaning theoretically the entire $1,000 could be lent out with no mandatory reserve held.
What does this bank do with the other $900? Lend it to customers in the form of mortgage loans, personal loans, small business loans, etc. The banks earn more from interest on those loans than it would leaving it sitting idle in the vault. You can pretty much guarantee that the bank is generating higher interest from those loans than customers would by socking away their cash in a savings account.
Once again , the bank reserves must be in the vault each day at the close of business or in the nearby Federal Reserve bank. This is to ensure that there are theoretically sufficient reserves so the bank won’t buckle under the pressure of a potential run. This rule applies to –
- Commercial banks
- Savings banks
- Thrift Institutions
- Credit Unions
The weaker the reserve requirement ratio, the greater the chance of a run on a bank, as evidenced by the fallout at Silicon Valley Bank. The higher the reserve requirement, the tougher it is for small and medium-sized banks to compete with loans because they have to keep more of their deposits in reserves.
In the United States, the reserve requirement ratio for banks is zero percent, a threshold that was set by the Federal Reserve board of governors in the wake of the health crisis. More about that later.
The History of Reserve Requirements
1860s — The National Bank Act
Reserve requirements date back to the 1860s when the National Bank Act came into effect. The core idea: banks should keep a fraction of deposits in a safe place to survive withdrawal pressure.
1913 — The Federal Reserve Changes Everything
With the formation of the Fed in 1913, reserve requirements took on a new role. In 1917, requirements were set at 13%, 10%, and 7% depending on bank type. The Fed’s ability to act as lender of last resort reduced the existential importance of reserve ratios.
Pre-2020 — The Three-Tier US System
Before the 2020 change, US reserve requirements followed a tiered structure:
- 10% for banks with deposits above $127.5 million
- 3% for banks with deposits between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
March 26, 2020 — The Fed Goes to Zero
In response to the COVID-19 pandemic, the Federal Reserve reduced reserve requirement ratios to zero percent for all depository institutions, effective March 26, 2020. This remains the current policy.
Global Reserve Requirements Compared
Not every country runs on zero reserves. Here is how major economies compare:
👉 Quick takeaway: Reserve requirements vary widely across countries — the US currently requires 0%, while some emerging markets enforce rates of 4–7% to manage liquidity risk.
| Country / Region | Reserve Requirement | Applied To | Notes |
|---|---|---|---|
| United States |
0% ⚠️ No minimum required |
All deposit tiers | Reduced to 0% on March 26, 2020 by the Fed |
| European Union | 1% | Short-term deposits | Set by the ECB |
| Japan | 0.8% | Varies by deposit type | Set by Bank of Japan |
| Saudi Arabia |
7% 🏆 Highest in this table |
Demand deposits | Set by SAMA |
| UAE | 1% | Demand deposits | Set by Central Bank of UAE |
| India | ~4% (CRR) | Net demand and time liabilities |
Set by RBI ⚠️ Also has a Statutory Liquidity Ratio |
Key insight: The US is among the most permissive in the world. Countries like Saudi Arabia require banks to hold 7x more in reserves than US banks are legally required to hold today.
Why is the US Reserve Requirement Zero?
The U.S. reserve requirement is currently zero percent across all deposit tiers and all depository institutions. The Federal Reserve’s Board of Governors reduced reserve requirement ratios to zero percent effective March 26, 2020, applying the change universally — not just to non-transactional accounts. Banks may still hold voluntary excess reserves, but there is no regulatory minimum floor. The catalyst for this severe cut was the COVID-19 pandemic, in response to which the Fed wanted to encourage banks to lend to one another.
This “requirement” paves the way for banks to hold zero reserves for bank deposits in the vault. It exacerbates the issues inherent with fractional reserve banking to begin with. With the recent failure of SVB and a handful of other banks, the writing is on the wall in terms of the risks associated with a zero reserve requirement.
Prior to the latest cut, the reserve requirements weren’t much better —
- 10% for banks whose deposits surpassed $127.5 million. To recap, for every $1,000 deposited, banks were only required to have $100 in reserves.
- 3% for banks whose deposits ranged between roughly $17 million and $127.5 million
- 0% for banks with deposits up to $16.9 million
What Does Zero Reserve Requirement Mean for Your Deposits?
Here is what the 0% reserve requirement means in practical terms for everyday depositors:
Scenario: You deposit $10,000 at a US bank today.
- Required reserves the bank must hold: $0
- Amount the bank can legally lend out: up to $10,000
- FDIC insurance covers: up to $250,000 per depositor per institution (for eligible accounts)
- What protects you if the bank fails: FDIC insurance, not reserves
How to Evaluate Your Deposit Safety
- Check if your bank is FDIC-insured (fdic.gov)
- Confirm your total deposits per institution stay under the $250,000 FDIC limit
- If deposits exceed $250,000, consider spreading across multiple FDIC-insured institutions
- Review your bank’s capital adequacy ratios (Tier 1 capital ratio) as a proxy for financial health — the reserve ratio no longer serves this function
- Consider diversifying a portion of savings into assets not subject to fractional reserve risk
What Replaced Reserve Requirements as a Safety Mechanism?
The Fed now relies on three other tools to manage bank liquidity:
- Interest on reserve balances (IORB): Banks earn interest for holding voluntary reserves at the Fed, incentivizing them to keep buffers
- Open market operations: The Fed buys and sells securities to manage money supply
- Discount window lending: Banks can borrow from the Fed in a liquidity crunch
Frequently Asked Questions
Do US banks have to hold any reserves at all?
No legal minimum exists since March 26, 2020. However, banks voluntarily hold excess reserves at the Federal Reserve, partly because the Fed pays interest on those balances (IORB).
Is my money safe in a US bank with 0% reserve requirement?
Your deposits up to $250,000 per institution are protected by FDIC insurance, not by reserve requirements. The reserve ratio was never the primary consumer protection mechanism — deposit insurance is.
Which country has the highest reserve requirement?
Among major economies, Saudi Arabia’s 7% rate is among the higher requirements. Some emerging market central banks maintain requirements above 10%.
Did the Fed ever raise the reserve requirement back above zero?
No. As of the evidence available, the 0% rate set on March 26, 2020 remains in effect for all US depository institutions.
The Bottom Line on Reserve Requirements
The reserve requirement ratio for US banks is zero percent — and has been since March 26, 2020. That does not mean your deposits are unprotected, but it does mean the protection comes from FDIC insurance and the Fed’s broader toolkit, not from mandatory cash reserves sitting in a vault.
For depositors, the practical takeaways are:
- Verify your bank is FDIC-insured
- Keep deposits under $250,000 per institution to stay within coverage limits
- Understand that bank solvency today depends on capital ratios and Fed backstops, not reserve floors
- If you want exposure to assets that operate outside the fractional reserve system, decentralized protocols like Liquid Loans use over-collateralization as a structural alternative
The reserve requirement ratio is one number, but understanding it opens a window into how the entire modern banking system is structured — and what your real risks are as a depositor.
Gerelyn
Gerelyn is a financial journalist who has been covering Wall Street for more than 20 years. After reporting for some of the top trade publications on investment banking, infrastructure and retirement, she was drawn to decentralization and shifted her coverage to the blockchain and cryptocurrency space in mid-2017. Since then, she has contributed to several major Bitcoin, Blockchain, and DeFi news sites, and has also written a children’s book.
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