The reserve requirement is a regulation set by central banks that mandates commercial banks to hold a certain percentage of their deposits in reserve. This reserve can be kept as cash in the bank or as deposits with the central bank. The purpose of this requirement is to ensure that banks have enough funds available to meet customer withdrawals and maintain stability in the financial system. By adjusting the reserve requirement, central banks like the Federal Reserve can influence the amount of money that banks can lend. A lower reserve requirement allows banks to lend more, stimulating economic growth, while a higher requirement can help control inflation by limiting the money supply.