How Does the Federal reserve Create the Money Supply The Working of Commercial Banks (continued) However, they can not use all the deposit from the public for lending. Some of them must be kept as reserve(denoted as r) The Reserve Ratio(denoted as r) r=RD where D is the deposit from the publicHow Does the Federal Reserve Create the Money Supply • The Working of Commercial Banks (continued): – However, they can not use all the deposit from the public for lending. Some of them must be kept as reserve (denoted as R); – The Reserve Ratio (denoted as r) r = R/D where D is the deposit from the public