Question

The percentage of deposits that banking institutions must hold "in the vault," as it were, is called the _____.

Answer 1

The answer is reserve requirement. The reserve requirement is the proportion of deposits that banking institutions must hold in reserve in the vault as it were. The funds so held are not accessible for lending to businesses and consumers because the reserve requirement has such a influential effect on the money supply in which the federal reserve system does not alter it very every so often but trusting instead on open market processes most of the time.