The Federal Reserve announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2021.

The central bank set the reserve requirement ratio for all net transaction accounts in 2021 to zero in March 2020. Hence, all net transaction accounts are exempt from reserve requirements.

The reserve requirement exemption amount, which is the amount of a bank's reservable liabilities that will always be exempt from reserve requirements, will be set at $21.1 million, up from $16.9 million in 2020.

The low reserve tranche, which is the amount of a bank's net transaction accounts that may be subject to a reserve requirement ratio of not greater than 3%, will be set at $182.9 million in 2021, an increase from $127.5 million in 2020.

A depository institution's net transaction accounts greater than the low reserve tranche may be subject to a reserve requirement ratio of up to 14%, the Fed said.

The annual adjustments to the reserve requirement exemption amount and the low reserve tranche are based on growth in both total reservable liabilities and net transaction accounts at all depository institutions between June 30, 2019, and June 30 of this year.

Additionally, the Fed increased the nonexempt deposit cutoff level by $203.5 million to $1.26 billion for 2021, up from $1.06 billion in 2020. The central bank also increased the reduced reporting limit by $424.6 million to $2.63 billion for 2021, up from $2.21 billion in 2020.

The nonexempt deposit cutoff level and the reduced reporting limit are used to determine how frequently depository institutions must submit deposit reports.