Reserve requirement rate of interest
Setting the interest rate paid on required and excess reserve balances 10 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC's target range. Calculation of Reserve Balance Requirements. Reserve requirements are calculated by applying reserve ratios specified in Regulation D to an institution's reservable liabilities (See Reserve Ratios) as reported on the Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900) during the reserve computation period.The length of a reserve computation period depends on the frequency Reserve Requirement Changes Affect the Money Stock. Purpose and Functions (1994) describes how a change in the reserve requirement ratio affects bank credit and the money stock.4 Reserve requirements are the percentage of deposits that depository institutions must hold in reserve and not lend out. For example, with a 10 percent reserve