Dictionary of Banking Terms: legal reserves
legal reserves
portion of demand deposit and time deposit account balances, plus cash in a bank's vault, that can be used to meet reserve requirementsof the Federal Reserve System. Legal reserves must be kept in a prescribed form, either as vault cash or a deposit in a checking account at a district Federal Reserve Bank.
The monetary control act of 1980, which extended reserve requirements to state banks, phased in over an eight-year period, allows state banks to use their checking account in a Federal Reserve Bank to meet state reserve requirements, if allowed by state law.
