What follows when a central bank raises the reserve requirement?

1. Raising the requirement forces banks to hold larger reserves. 2. Money held back cannot be lent, so banks have less money to lend. 3. Scarcer loanable funds push interest rates up. 4. Dearer credit slows economic activity down, so the money supply falls and activity cools. 5. Pairing less lending with falling rates is the trap, because a smaller pool of funds cannot make credit cheaper. _Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.2 The Federal Reserve System_