Why isn’t the Federal Reserve requiring banks to hold depositors’ cash?

The fact that most banks aren’t required to keep your money on hand makes it likely that more bank failures will occur in the months ahead.

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The Federal Reserve Board reduced banking reserve requirements to zero in March 2020. Since that time, banks in the United States have not been required to actually hold any depositor money in the bank, making a flawed system — fractional reserve banking — worse. 

With Silvergate Bank, Silicon Valley Bank and Signature Bank now shuttered, many in the U.S. are wondering if regional banks pose the same risks. Zero reserve policies at the Federal Reserve only make further bank collapses more likely.

Fractional reserve banking

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