Federal Reserve Requirements:

One of the major functions of the Federal Reserve is monitoring the reserve requirements held by its member banks. Each member bank is required to keep a certain percentage of the total amount of funds they are holding on deposit on reserve with its federal district bank. This reserve requirement is meant to help protect individuals who deposit their money in these banks. Another reason why this is important is that the Federal Reserve is able to effectively manage the national money market by adjusting the amount held on reserve.

The Federal Reserve can raise the bank reserve requirement. This means that all commercial banks must now hold more money with the Federal Reserve that they previously had too. As a result, there is less money for the banks to lend with. This policy can enable the Federal Reserve to cool down a hot real estate market and slow the economic pace. With less money in the economy there is less money in peoples pockets. This means there are fewer buyers in the real estate market, and property values are likely to cool. This can be a good thing if you are looking for a Like-Kind Replacement Property for your 1031 Tax Exchange.

Another way the Federal Reserve can manipulate the economy is by lowering the bank reserve requirement. This means that all the commercial banks can now hold less of their money on deposit with the Federal Reserve. As a result, there is more money for the banks to lend with. This can stimulate a sluggish economy. With more money in the economy there is more money in peoples pockets. This means there are more buyers in the real estate market, and property values are likely to rise. This can be good if you are looking to sell your investment property in a 1031 Tax Exchange.

The amount of reserves that the Federal Reserve requires banks to hold can vary anywhere from three percent to twenty-two percent. For example, more reserves are required for liquid accounts such as checking accounts, and less are required for more permanent accounts like savings accounts. Also, urban banks are required to hold more on reserve than rural banks due to the high volume and quantity of transactions.