Question

In 1871 the banks were required to hold at least __________ of whatever cash reserves they chose to carry in the form of _______________.

Answer 1

In 1871, banks were mandated to hold a specific minimum percentage of their cash reserves as legal tender or Federal Reserve deposits, ensuring liquidity for withdrawals. Historical reserve requirements have varied, with notable percentages set in early 2015, and contemporary requirements reduced to 0% amidst the pandemic.

Step-by-step explanation:

In 1871, the banks were required to hold a minimum percentage of their cash reserves in the form of legal tender or deposits at the Federal Reserve. This was to ensure that they had enough liquidity to meet customers' withdrawal demands. At various points in history, the Federal Reserve set specific reserve requirements. For example, in early 2015, the Federal Reserve required banks to hold reserves equal to 0% of the first $14.5 million in deposits, then hold reserves equal to 3% of the deposits up to $103.6 million, and 10% of any amount above $103.6 million. Small adjustments to these requirements were made almost annually, and today the reserve requirement rates have been reduced to 0% due to the pandemic-induced recession as of March 2020.

Answer 2

In 1871, banks needed to hold a certain percentage of their cash reserves as legal tender or deposits at the central bank, with recent analogous historical data showing varied percentages based on the size of deposits.

Step-by-step explanation:

In 1871, banks were required to hold at least a certain percentage of their cash reserves in the form of legal tender or deposit at the central bank. While the exact percentage is not provided in the historical context given, using analogous information from the Federal Reserve's more recent reserve requirements can be insightful. For a period until March 2020, the Federal Reserve required that banks hold reserves equal to 0% of the first $14.5 million in deposits, then 3% of the deposits up to $103.6 million, and 10% of any amount above $103.6 million. However, these requirements have since been reduced to 0%, eliminating the reserve requirement for all depository institutions.