The percentage of money that the Federal Reserve mandates that banks must keep is referred to as reserve requirement.
The reserve requirement is the portion of the deposits of banks that is kept as reserves. The purpose of reserves is to be able to meet unforeseen cash outflows and control money supply. The reserve requirement is determined by the reserve ratio.
For example, if the reserve ratio set by the Federal reserve is 10%, it means that 10% of all deposits would be kept as reserves. If a customer deposits $1000, $900 would be lent out while $100 would be kept as reserves.
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