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The impact of eliminating reserve requirements on US banks' lending, liquidity, and profitability during COVID‐19

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  • Jascha‐Alexander Koch
  • Mohammad Saiful Islam

Abstract

The US Federal Reserve System (Fed) eliminated reserve requirements for banks in March 2020 during the first quarter of the COVID‐19 pandemic to foster bank lending through expansionary monetary policy. However, we find empirical evidence that the reserve requirements elimination was not able to support bank lending but instead increased the liquidity of US banks. Moreover, the reserve requirements elimination increased the overall profitability of banks but decreased the profitability from net interest income as measured by net interest margin. Our study offers guidance for policy‐makers in taking appropriate monetary policy measures during pandemics like the COVID‐19 pandemic.

Suggested Citation

  • Jascha‐Alexander Koch & Mohammad Saiful Islam, 2026. "The impact of eliminating reserve requirements on US banks' lending, liquidity, and profitability during COVID‐19," Review of Financial Economics, John Wiley & Sons, vol. 44(1), January.
    • Handle: RePEc:wly:revfec:v:44:y:2026:i:1:n:e70033
    DOI: 10.1002/rfe.70033
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