The Federal Reserve Board: Monetary Policy Douglas Brewer: A summary of Federal Reserve Board Reserve Requirements Copyright: The Federal Reserve Board 10/07/2004 “The Federal Reserve Board Reserve Requirements”

11/08/2004 Module 8Douglas Brewer—A review of Reserve Requirements from Federal Reserve Policy Tools The federal Reserve has several policy tools that affect the economy in a very pragmatic way. These tools according to the website include: Open market operations The discount rate Reserve requirements I will focus on reserve requirements and summarize the specific features of this policy tool

11/08/2004 Module 8Douglas Brewer—A review of Reserve Requirements from Reserve Requirements “Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities” The Board of Governors is the only institution that has the ability to alter the amount of reserve requirements that an institution must hold in reserve Depository institutions have to keep there reserves with a Federal Reserve bank These reserve accounts must be in the form of either vault cash or deposits

11/08/2004 Module 8Douglas Brewer—A review of Reserve Requirements from Reserve Requirements Continued To determine the actual dollar figure that a bank must hold at a Federal Reserve Bank is configured by applying the reserve ratios against the bank’s reserve liabilities Alan Greenspan: Chairman This is accordance with Federal Reserve Regulation D

11/08/2004 Module 8Douglas Brewer—A review of Reserve Requirements from Reserve Liabilities Reserve liabilities consist of: Net transaction accounts Nonpersonal time deposits Eurocurrency liabilities

11/08/2004 Module 8Douglas Brewer—A review of Reserve Requirements from Summary I think that it is important to understand the significance of Federal Reserve Monetary Policy because it factors in the overall state of the national economy