Reserve Requirements of Depository Institutions

As previously announced by the Board of Governors of the Federal Reserve System (FED) on November 27, 2023 (EventID 24179), the FED has now published in the Federal Register its final rule which modifies statutory instrument 12 CFR Part 204, § 204.4 to adjust the amounts of reservable liabilities, including net transaction accounts, exempt from reserve requirements for 2024. Because the reserve ratio was set to zero at the onset of Covid-19 in 2020 (even beyond the limits), the new boundaries actually have no direct effect on the reserve requirements of institutions.
Specifically, as announced, the FED adjusts the reserve requirement exemption amount and the low reserve tranche for 2024 as follows:
– the exemption amount remains as is at $36.1 million and
– the low reserve tranche is reduced to $644.0 million (from a previous $691.7 million in 2023).
The low reserve tranche thereby represents the maximum amount of reservable liabilities above the exemption amount towards which the FED may apply a reserve ratio of 3%. For all amounts above the low reserve tranche, the FED may apply a reserve ratio of up to 14%. This staged approach represents the liquidity risks involved in transaction accounts which increases as balances in transaction accounts increase.
A yearly adjustment is made (indexing) based on the total reservable liabilities of all credit institutions which decreased in the previous year.