Question

By law, all commercial banks and thrift institutions that provide checkable deposits are required to _____.

A. lend out no more than the amount of their required reserves
B. hold 100% of customers' deposits on reserve
C. keep an amount of funds equal to a specified percentage of the bank's own deposit liabilities with the Federal Reserve Bank
D. hold a fraction of both their assets & liabilities on reserve "in-house" or at the Federal Reserve Bank

Answer 1

Commercial banks and thrift institutions must keep an amount of funds equal to a specified percentage of their deposit liabilities with the Federal Reserve Bank, known as a reserve requirement, although these requirements were reduced to 0% in March 2020.

Step-by-step explanation:

By law, all commercial banks and thrift institutions that provide checkable deposits are required to keep an amount of funds equal to a specified percentage of the bank's own deposit liabilities with the Federal Reserve Bank. This is known as a reserve requirement. Previously, banks were required to hold reserves equal to various percentages of their deposits, based on tiers, but as of March 2020, these reserve requirements have been reduced to 0%, effectively eliminating them for all depository institutions. However, regardless of actual required levels, banks still need to manage their reserves carefully to ensure they can meet day-to-day liquidity demands and maintain public confidence.