Reserve Maintenance Period

The reserve maintenance period is the time frame in which banks and other depository institutions must maintain a specified level of funds. It is a two-week period that begins on a Thursday and ends on a Wednesday. An assessment of overdrafts and corresponding charges also occurs during this time period.

Because the specified amount of reserve funds changes regularly, it is important for the institution to have an account at a reserve bank or a subsequent pass-through arrangement, in order to ensure that the appropriate funds are available. Vault cash can also be counted toward the reserve requirements for a given reserve maintenance period, but a pass-through arrangement or reserve bank balance is typically used to make up the shortfall between a bank’s available vault cash and its reserve requirement.

In a pass-through arrangement, a bank satisfies its reserve requirement for a given reserve maintenance period by passing its reserve balance through the account of a correspondent bank or credit union. Eligible correspondent banks include National Credit Union Administration Central Liquidity Facilities, Federal Home Loan Banks, depository institutions or banking Edge Act and Agreement corporations with a master account at a Federal Reserve Bank. Otherwise, a bank may meet its reserve requirements by depositing reserve funds in its own Federal Reserve account.

To calculate whether or not a specific bank has adequate funds in its reserve account or pass-through account to satisfy the reserve requirement, the Federal Reserve uses the average of all the end-of-day balances of that institution's master account throughout the reserve maintenance period. That means that a given bank’s reserve balance can fall below, or exceed, the requirement threshold on a given day without necessarily incurring a penalty. Institutions can make up for shortfalls by maintaining a higher balance on other days in the reserve maintenance period.

A penalty-free band exists that is equal to the reserve balance requirement, plus or minus a specific dollar amount. For banks and depository institutions that maintain their reserve balances directly with the Federal Reserve, the top and bottom thresholds of this band is $50,000 or 10 percent of the institution’s reserve balance requirement, whichever amount is greater. The institution must maintain an average balance greater than or equal to the bottom of this penalty-free band in order to fulfill its requirements in any given reserve maintenance period.