The reserve requirement is a regulatory mandate that stipulates the minimum amount of reserves that a bank must hold against its deposit liabilities. This requirement is typically expressed as a percentage of the bank's total deposits and can vary based on the type of deposits (e.g., demand deposits, savings deposits) and the size of the bank. Reserve requirements serve several purposes: 1. **Stability**: They ensure that banks maintain a certain level of liquidity, helping to promote stability in the financial system.
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