<p>I believe that the Fed is more focused on saving the US economy from collapsing because of the effects of the coronavirus situation. 
When the Fed wants to loosen monetary policy and increase liquidity, it lowers the reserve requirements ratio which will make lending cheaper. </p>

<p>Lowering the reserve requirement increases the amount of money that banks have available to lend. Since the supply of money is higher, banks can charge less to lend it. 
Thereby more people will access to have loans at a cheaper interest in order to encourage spending. 
<a href="https://www.thebalance.com/reserve-requirement-3305883" rel="nofollow noreferrer">https://www.thebalance.com/reserve-requirement-3305883</a></p>

<p>With the fast-spreading coronavirus posing a dire threat to economic growth the Fed is hoping that this move will help prevent the US economy from collapsing. 
<a href="https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html" rel="nofollow noreferrer">https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html</a></p>

<p>I am sure that the Fed is concerned about bank runs but it may be the case that they only have few options available to help encourage spending to prevent our economy from collapsing. </p>

CC BY-SA 4.0
2020-03-22T04:01:24.767Z
2020-03-22T04:01:24.767Z
Mike J
<p>Reserve requirements do very little to stop bank runs, and other countries abolished them years ago. Deposit insurance is the main mechanism to stop bank runs, as well as capital requirements.</p>

CC BY-SA 4.0
2022-08-16T13:47:24.880Z
I second that. For anyone interested, this [answer](https://economics.stackexchange.com/a/52316/37817) discusses a few aspects of Basel III ("banking regulation") that banks need to follow
AKdemy
CC BY-SA 4.0
2020-03-22T03:02:36.063Z
2020-03-22T03:02:36.063Z
Brian Romanchuk
<p>On 15 March 2020, the Federal Reserves announced that it would cut its benchmark rate to near zero and that it would also reduce the reserve requirements ratio to zero percent. This is part of its efforts to bolster the economy amidst this downturn. The reserve requirements ratio was put in place to prevent bank runs, which would be damaging to financial institutions as well as households. Why would the Fed deem that it is now safe to put the reserve requirements ratio to zero? Is it no longer afraid that bank runs may occur?</p>

CC BY-SA 4.0
2020-03-22T02:33:21.373Z
The Fed has said it will lend freely to banks, and so in effect will deal itself with the liquidity risk associated with any potential runs on banks.  There is still a solvency issue, but that is a matter for FDIC and the chartering authorities rather than the Fed.
Henry
<monetary-policy><federal-reserve><reserve-requirement-ratio>
Allowing the reserve requirements drop to zero
Tan Yong Boon
# Allowing the reserve requirements drop to zero

(Asked by: username_0 on 2020-03-22)

On 15 March 2020, the Federal Reserves announced that it would cut its benchmark rate to near zero and that it would also reduce the reserve requirements ratio to zero percent. This is part of its efforts to bolster the economy amidst this downturn. The reserve requirements ratio was put in place to prevent bank runs, which would be damaging to financial institutions as well as households. Why would the Fed deem that it is now safe to put the reserve requirements ratio to zero? Is it no longer afraid that bank runs may occur?

**Tags:** monetary-policy, federal-reserve, reserve-requirement-ratio

> **Comments:**
> **username_1**: The Fed has said it will lend freely to banks, and so in effect will deal itself with the liquidity risk associated with any potential runs on banks.  There is still a solvency issue, but that is a matter for FDIC and the chartering authorities rather than the Fed.  

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## 2 answers

### Answer by username_2 on 2020-03-22. Score: 1

I believe that the Fed is more focused on saving the US economy from collapsing because of the effects of the coronavirus situation.
When the Fed wants to loosen monetary policy and increase liquidity, it lowers the reserve requirements ratio which will make lending cheaper.

Lowering the reserve requirement increases the amount of money that banks have available to lend. Since the supply of money is higher, banks can charge less to lend it.
Thereby more people will access to have loans at a cheaper interest in order to encourage spending.
<https://www.thebalance.com/reserve-requirement-3305883>

With the fast-spreading coronavirus posing a dire threat to economic growth the Fed is hoping that this move will help prevent the US economy from collapsing.
<https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html>

I am sure that the Fed is concerned about bank runs but it may be the case that they only have few options available to help encourage spending to prevent our economy from collapsing.


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### Answer by username_3 on 2020-03-22. Score: 1

Reserve requirements do very little to stop bank runs, and other countries abolished them years ago. Deposit insurance is the main mechanism to stop bank runs, as well as capital requirements.

> **Comments:**
> **username_4**: I second that. For anyone interested, this [answer](https://economics.stackexchange.com/a/52316/37817) discusses a few aspects of Basel III ("banking regulation") that banks need to follow  

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