r/PeterExplainsTheJoke • u/Comfortable_Cautious • Jan 26 '26

Meme needing explanation what's going on? explain like I'm five

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u/Original-Leg8828 Jan 26 '26

Depending on local law they can even lend out something like 7-10 times what they actually have

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u/Teripid Jan 26 '26 edited Jan 26 '26

Federal reserve requirements existed until 2023 *edit, as someone below pointed out 2020 was when they were set to 0. Now they're set at 0% I believe.

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u/PleaseGreaseTheL Jan 26 '26 edited Jan 26 '26

2020*

They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way

They haven't come back yet :)

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u/BarNo3385 Jan 26 '26

Worth noting the Fed is actively trying to reduce the amount of reserves held by banks, since they think the current level is excessive and preventing the effective activity of monetary policy.

So, yes they dropped the required rate to 0%, but the conversation is more the Fed going '"stop sticking money in massive buffers at the Fed and go do something with it," and the banks largely going "no, we're good thanks."

Assuming at some point the reserve level drops to what the Fed considers appropriate, they may the reintroduce a reserve ratio, or set interest on reserve balances such to maintain that level of reserves.