Which of the following describes the nature of reserves in relation to customer deposits?

The nature of reserves in relation to customer deposits is accurately described by the idea that only a fraction of deposits must be kept as reserves. This principle is fundamental to fractional-reserve banking, where banks are only required to hold a small percentage of customer deposits in reserve to meet withdrawal demands. The remaining deposits can be used by the bank for lending and investment purposes, thereby facilitating economic growth and liquidity in the financial system.

In the context of banking operations, if a bank were to hold all customer deposits as reserves, it would limit its ability to extend loans, impacting its profitability and the overall economy. Consequently, not all deposits need to be kept as reserves, allowing banks to engage in lending while still ensuring that they meet customer withdrawal needs and regulatory requirements.

The other options misrepresent the reserve requirements: suggesting that all deposits must be held as reserves or that reserves must equal total deposits overlooks the foundational concept of fractional-reserve banking. Similarly, the idea that no reserves are necessary does not align with regulatory standards and the functional operations of banks.