Did Zero Reserve Requirements Boost Lending? Evidence from the 2020 Fed Reform

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Abstract

In March 2020, the Federal Reserve reduced reserve requirements for transaction deposits from 10% to 0%, explicitly aiming to free up bank balance sheets for lending. Using Call Report data, I examine how banks responded to this regulatory change. Before the reform, all banks held at least 10% reserves, and roughly half of deposits were at banks with reserve ratios exceeding 40%. Afterward, the distribution shifted sharply, with one-thirds of deposits at banks holding less than 10% reserves. Did this translate into more lending? I find that banks significantly adjusted their portfolios, increasing securities holdings by [X]% and loan portfolios by [Y]%. These results suggest that while the elimination of reserve requirements changed balance-sheet allocation, the marginal effect on credit supply was [large/limited] relative to securities investment.

Citation

Pusateri, Nicholas R. 2025. “Did Zero Reserve Requirements Boost Lending? Evidence from the 2020 Fed Reform.” Working Paper. URL: https://nicpusateri.com/zero

@article{pusateri2025zero,
  title={Did Zero Reserve Requirements Boost Lending? Evidence from the 2020 Fed Reform},
  author={Pusateri, Nicholas R.},
  journal={Working Paper},
  year={2025},
  url={https://nicpusateri.com/zero},
  }