Fed Tightens Recently Loosened Requirements on Bank Reserves
The Federal Reserve Board yesterday tightened up some of the reserve requirements it had loosened last week, saying that it had ÛÏsignificantly underestimatedÛ the amount of ienda-ble funds it was releasing into the banking system.</br></br>Last week, the Fed restructured its reserve requirementsÛÓwhich determine what percentage of a deposit a bank may lend out and what percentage it must keep in cash or in non-interest bearing accounts with the Federal Reserve.</br></br>It said at the time it expected to release $750 million in reserves into the system, which would satisfy the needs of the banking system around Christmas time when loan demand is at a seasonal high.</br></br>But instead of injecting the reserves by buying government securities through its open market onerations. the Fed chose to restructure its reserve requirements so as to encourage banks to seek longer-term deposits. 11 did so by raising from 5 to 6 per cent the reserve requirement on deposits ot $100,000 which mature in four months or less, while lowering from 5 per cent to 3 per cent the reserve requirement on large deposits which mature in four months or more.</br></br>That alternate tightening and loosening of the reserve requirements, coupled with two other reserve actions