Pending Reserve Requirements & Liquidity Maintenance Policy | R-001

[DonTrillions]

Category: Core Monetary Framework
Affected Parties: All Financial Institutions (FIs), FRB Treasury & Audit Divisions
Minting Required: N
Estimated Cost: N/A
Legal Basis: Federal Reserve Act (FRA) §§ 4, 5, 6, 8, 9, 11 & 13​

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1 Purpose
This Policy establishes the statutory reserve system of the Commonwealth of Redmont.
It guarantees that all Financial Institutions maintain verified, FRB-controlled reserves to secure deposits, sustain liquidity, and uphold the integrity of all monetary resources circulating within the economy.

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2 Objectives

• Protect depositors and preserve public confidence in Redmont’s banking sector.
• Ensure every FI is fully backed by real, on-ledger funds.
• Provide the FRB with tools to manage liquidity and credit creation.
• Support the smooth operation of the FRB T-Bill Program and all interbank settlements.
• Prevent the use of unverified or “spawned” funds in financial operations.

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3 Definitions

Term​	Definition​
Reserve Account	Ledger account at the FRB representing an FI’s verified monetary holdings.
Required Reserve Ratio (RRR)	Minimum % of total deposit liabilities that must remain in the Reserve Account.
Free Reserves	Balances held above the required minimum.
Eligible Collateral	FRB-approved, market-valued instruments (e.g., T-Bills) accepted as partial substitutes for cash reserves.
Reserve Deficiency	Condition where an FI’s verified reserve balance falls below its RRR.

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4 Reserve Structure

1. Mandatory Accounts. Every licensed FI shall maintain a Reserve Account with the FRB.
2. On-Ledger Funds Only. Only FRB-ledger cash or FRB-issued instruments may constitute reserves; off-ledger or bot-generated balances are void under FRA § 3.
3. Required Ratio. Each FI must hold reserves of at least 30% of total customer deposits based on the institution’s average daily deposit liabilities over the reporting period. (or another ratio set by Board motion).
4. Eligible Collateral Limit. Up to 50% of required reserves may be satisfied with FRB-approved collateral valued at Board-set haircuts.
5. Post-Settlement Floor. After any transaction, including T-Bill purchases, an FI’s reserve ratio must remain above its RRR.
   

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5 Verification and Reporting

1. Daily Check. FRB Treasury Operations automatically verifies each FI’s reserve level every 24 hours.
2. Monthly Filing. Each FI submits a certified statement of deposits and reserves by the 5th day of each month.
3. FRB Audit. The FRB Audit Division publishes a consolidated Reserve Report on the 15th of each month (FRA § 8).
4. False Reporting. Misstatement or concealment constitutes misconduct under FRA § 8 (5).
   

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6 Reserve Deficiencies and Corrective Actions

1. Grace Period. An FI below its RRR must restore compliance within 7 days.
2. Automatic Sanctions. Unresolved deficiencies trigger—
    a. Immediate freeze on new lending;
    b. Mandatory top-up of missing reserves;
    c. Penalty interest applied to the shortfall at up to the FRB Discount Rate + 2 pp; and
    d. Public disclosure in the monthly Reserve Report.
3. Escalation. Persistent deficiency beyond 14 days is referred to the Inspector-General and DOJ under Criminal Code § 25 (Reserve Requirement Violation).

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7 Integration with FRB Operations

1. T-Bill Program. Only verified Reserve Account balances may fund T-Bill subscriptions.
2. Liquidity Facilities. The FRB may lend against Free Reserves or Eligible Collateral through repo or discount operations.
3. Payments System. All interbank settlements clear through Reserve Accounts; those balances represent the single source of truth for system liquidity.
   

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8 Transparency and Oversight

1. Public Data. Aggregate reserves, average ratios, and deficiencies shall be published monthly.
2. Inspector-General Access. Full read-only access to Reserve Accounts and audit logs (FRA § 8 (10)–(13)).
3. Congressional Control. Amendments to reserve ratios or enforcement rules may be vetoed or suspended under FRA § 9.
   

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9 Governance and Review

• Authority: Federal Reserve Board (FRA § 5).
• Voting: Majority of Sitting Members; DOC Secretary votes only to break ties.
• Review Cycle: Quarterly review of ratios, collateral policy, and systemic liquidity.
• Continuity: Remains in force under FRA § 11 until repealed or superseded.
  

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10 Reserve Remuneration Framework
(a) The FRB distinguishes between:
 – Required Reserves (held to meet the RRR); and
 – Excess Reserves (balances above that minimum).
(b) Required Reserves are non-interest-bearing, serving solely to ensure system liquidity and payment stability.
(c) Excess Reserves may earn interest at the Interest on Reserves (IOR) rate set by the Board, normally equal to or below the prevailing FRB Discount Rate.
(d) Interest on Reserves accrues daily and is credited monthly by FRB Treasury Operations; all payments appear in the monthly Reserve Report (FRA § 8 (1)).
(e) The Board may suspend or adjust the IOR framework by majority vote during periods of abnormal liquidity stress or monetary tightening.
(f) Interest on Excess Reserves accrues daily on the closing balance of each reserve account and is credited on the first business day of the following month.