Final answer:
The Federal Reserve sets the reserve requirement for banks. In early 2015, banks were required to hold reserves equal to a certain percentage of their deposits, but the requirements have been reduced to 0% as of March 2020.
Step-by-step explanation:
The Federal Reserve sets the reserve requirement for banks. In early 2015, banks were required to hold reserves equal to 0% of the first $14.5 million in deposits, 3% of the deposits up to $103.6 million, and 10% of any amount above $103.6 million. However, as of March 2020, the reserve requirements were reduced to 0%, effectively eliminating the reserve requirement for all depository institutions.
For example, if Humongous Bank has $20 million in deposits and is required to hold 5% as reserves, they would need to hold $1 million as reserves and can loan out the rest.