Fed makes 0% Reg D reserve permanent

(Feb. 12, 2021) A reprieve for financial institutions from reserve requirements on transactions accounts, implemented last March to keep money flowing amid the coronavirus pandemic, will be permanent under a final rule approved this week by the Federal Reserve Board.

Last year, the Fed Board issued an interim rule setting the transaction account reserve requirement to zero and sought comments on making this permanent; none were submitted. The Fed’s final rule takes effect March 12.

The Fed’s Reg D implements the Fed’s authority under Section 19 of the Federal Reserve Act to require reserves. Section 19(b)(2) of the act requires each depository institution to maintain reserves against its transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities, as prescribed by Board regulations, for the purpose of implementing monetary policy.

Reserve requirements for nonpersonal time deposits and Eurocurrency liabilities have been set at 0% since 1990, so the only reserving required since then was on transaction accounts.

The Fed announced the interim rule and request for comments on zero reserving March 15, 2020. At the time, it said that more than 2,500 depository institutions maintained, in aggregate, $150 billion in account balances to satisfy their Reg D reserve balance requirements.

Regulation D: Reserve Requirements of Depository Institutions