Apollo Commercial Real Estate Finance, Inc. (ARI): PESTLE Analysis [Nov-2025 Updated]

You're looking at Apollo Commercial Real Estate Finance, Inc. (ARI) right as the market hits a critical inflection point. The near-term challenge is real: a massive $1.8 trillion in Commercial Real Estate loans is due by the end of 2026, plus the office sector still faces a 17.5% distress rate. But ARI isn't sitting still; they executed $1.0 billion in new loan originations in Q3 2025, positioning their 98% floating-rate portfolio to defintely benefit from the Fed's projected 3.9% target rate. To make a smart investment decision, you need to see how Political shifts, the looming Economic wall, and the rise of AI-driven Tech demand all map to ARI's strategy. Let's break down the external forces shaping their 2025 performance.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Political factors

Potential shift in SEC regulatory framework following the US administration change.

You need to understand that the regulatory environment for a commercial real estate credit Real Estate Investment Trust (REIT) like Apollo Commercial Real Estate Finance, Inc. (ARI) is shifting toward a lighter touch, but with a new focus on risk. The Securities and Exchange Commission (SEC), under its new leadership in 2025, has signaled a clear pivot away from the expansive, disclosure-heavy rulemaking of the prior administration. This is defintely a positive for reducing compliance overhead.

The SEC's Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, released in September 2025, reflects this change. The agency formally withdrew 14 prior rule proposals by June 2025, including those related to Environmental, Social, and Governance (ESG) disclosures and certain cybersecurity risk management rules. Still, they are not taking their eye off the ball entirely. The new focus is on the private credit space, which is highly relevant to ARI's business model, as they originate and invest in commercial real estate debt.

The SEC's 2026 examination priorities specifically call out the risks in private credit, especially when retail investors are involved. This means while the compliance burden from broad disclosure rules may ease, you should expect heightened scrutiny on valuation practices and risk management for ARI's $8.3 billion loan portfolio as of September 30, 2025. It's a trade-off: less paperwork, more focus on core risk exposure.

Recently enacted tax-and-spending bill maintains favorable real estate tax treatment.

The most significant political event for the real estate finance sector in 2025 was the signing of the 'One Big Beautiful Bill Act' on July 4, 2025. This comprehensive tax-and-spending bill is a clear win for REITs and the broader real estate industry, cementing several key tax benefits that were set to expire.

The bill made permanent several cornerstone provisions of the 2017 Tax Cuts and Jobs Act (TCJA), providing long-term certainty for your tax planning. For ARI, the most impactful changes are in three areas: the REIT dividend deduction, depreciation, and interest deductibility. This stability is crucial when ARI is originating new loans, such as the $1.0 billion in new loans originated in Q3 2025.

Here's a quick look at the key tax provisions for real estate finance in the new law:

Geopolitical volatility (e.g., global trade tensions) impacting cross-border capital flows.

Geopolitical volatility is translating directly into a more cautious, but highly selective, flow of capital into U.S. commercial real estate (CRE). While the U.S. is still a safe haven, foreign investors are more discerning, and this affects liquidity in certain CRE segments.

Overall, cross-border capital has pulled back, but the picture is mixed. For example, in Q1 2025, total cross-border investment in U.S. CRE surged to $2.4 billion, a 130% increase year-over-year. However, this spike was largely driven by a single $1.1 billion logistics portfolio purchase by Norway's sovereign wealth fund. This suggests that while overall sentiment is strained, large, high-quality, income-producing assets-which align with ARI's focus on first mortgage loans-are still attracting major international institutional capital.

The political risks are clear:

• The politicization of the Committee on Foreign Investment in the United States (CFIUS) process has caused a 15% decline in Foreign Direct Investment (FDI) into U.S. real estate sectors adjacent to military installations.
• A Q2 2025 survey showed that 71% of CRE investors were pausing new cross-border activity due to high rates and policy uncertainty.
• Canada remains the largest non-U.S. investor, acquiring $7.3 billion (or 35% of the total cross-border investment) in the four quarters ending Q1 2025.

For ARI, which operates in both the U.S. and Europe, this volatility means a potential reduction in competition for new deals from foreign buyers, but also a need for greater diligence on borrower capital structures that rely on cross-border equity or debt.

Federal court ruling paused enforcement of the Corporate Transparency Act.

The enforcement of the Corporate Transparency Act (CTA) has been a compliance headache, but the political winds have provided relief for domestic companies. Following a series of legal challenges and injunctions, the U.S. Treasury Department announced on March 2, 2025, that it would not enforce any penalties or fines associated with the Beneficial Ownership Information (BOI) reporting rule for U.S. citizens and domestic reporting companies.

The Treasury Secretary stated the intent to issue a new proposed rulemaking that would narrow the scope of the CTA to focus on foreign reporting companies only. This is a major, though temporary, win for domestic businesses, including many of ARI's borrowers and the special purpose entities (SPEs) they use to hold property. It eliminates a significant, non-value-add compliance cost and administrative burden for the near term. This is a clear example of regulatory relief directly impacting the operating environment for commercial real estate owners.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Economic factors

Federal Reserve's target interest rate projected around 3.9% by late 2025.

The macroeconomic environment is the primary driver for a commercial real estate debt fund like Apollo Commercial Real Estate Finance, Inc. (ARI). The biggest factor right now is the cost of capital, which is set by the Federal Reserve's (the Fed) target interest rate. The Fed has been easing its tight policy, but rates are still elevated. As of November 2025, the Federal Funds Rate target range was lowered to 3.75%-4.00%, with the benchmark rate last recorded at 4%.

For ARI, this stabilizing but high rate environment is a double-edged sword. On one hand, it increases the interest income on their loans. On the other, it puts immense pressure on their borrowers who must refinance maturing debt at significantly higher costs. Honestly, the Fed's slow, cautious approach is designed to prevent a crash, but it prolongs the pain for highly leveraged property owners.

ARI's floating-rate portfolio (98% of loans) benefits from higher, though stabilizing, rates.

ARI is structurally positioned to benefit from this high-rate world because its portfolio is overwhelmingly floating-rate. As of the end of Q3 2025, the company's total loan portfolio stood at $8.3 billion and was 98% floating rate. This means that when the Fed raises rates, ARI's interest income rises almost immediately. The weighted-average unlevered all-in yield on their loan portfolio was 7.7% in Q3 2025, a strong return profile that directly reflects the higher base rates.

This structure is a clear competitive advantage in a high-rate cycle, but it also increases the risk of borrower default. If the underlying property income can't keep pace with the rising debt service payments, the loan's risk rating increases. ARI's distributable earnings for Q3 2025 were $42 million, or $0.30 per diluted share, which fully covered the $0.25 quarterly dividend, showing the immediate benefit of the higher yield.

Commercial Real Estate (CRE) investment activity forecast to grow 10% to $437 billion in 2025.

Despite the high cost of debt, the overall US Commercial Real Estate (CRE) investment market is showing signs of recovery and transaction volume is expected to increase. The forecast for 2025 indicates that CRE investment activity will grow by 10%, reaching a total of $437 billion. This growth is a positive signal for ARI, as increased transaction volume means more demand for transitional financing-the exact type of loans they specialize in.

However, this recovery is highly selective. The growth is concentrated in prime assets and resilient sectors like industrial and data centers, while the office sector continues to struggle. The new loan commitments closed by ARI year-to-date in 2025 totaled $3.0 billion, all of which were floating-rate first mortgages with a conservative weighted average loan-to-value (LTV) ratio of 57% to 58%. This shows they are sticking to high-quality, lower-risk deals, even as the market heats up.

Elevated loan maturity wall, with nearly $1.8 trillion in CRE loans due by end of 2026.

The single largest systemic risk facing the CRE market, and a huge opportunity for ARI, is the looming maturity wall. About $1.8 trillion in commercial real estate debt is scheduled to mature by the end of 2026. This isn't just a 2026 problem; nearly $957 billion in CRE loans are scheduled to mature in 2025 alone.

Here's the quick math: many of these loans were originated in 2021 at ultra-low interest rates. Refinancing them today means a massive jump in debt service, often forcing borrowers to inject significant new equity or face default. This is where ARI's expertise comes in. As traditional banks pull back from lending due to capital constraints, private debt funds like ARI can step in to provide the necessary financing, albeit at higher rates and stricter terms. This market dislocation creates a strong origination environment for non-bank lenders.

To be fair, the maturity wall is a huge risk for the broader economy, but for a well-capitalized, experienced player like ARI, it's defintely an opportunity to cherry-pick high-quality, higher-yielding loans.

• Monitor borrower debt service coverage ratios (DSCRs) closely.
• Prioritize new loan originations in resilient sectors like industrial and residential.
• Maintain high liquidity ($312 million in total liquidity as of Q3 2025) to capitalize on distressed opportunities.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Social factors

Sustained hybrid work models cause a 17.5% distress rate in the office sector.

The social shift to sustained hybrid and remote work models continues to fundamentally restructure the U.S. office market. This isn't a cyclical dip; it's a structural change. For Apollo Commercial Real Estate Finance, Inc. (ARI), this means the office loan book remains the most challenging segment of the portfolio.

The national office vacancy rate climbed to a record high of 20.4% in Q1 2025, according to Moody's, reflecting the lasting impact of reduced corporate footprints. This is a direct result of companies requiring less space, with demand for office spots still about 30% below pre-pandemic levels. The real pressure point for the entire commercial real estate (CRE) sector, including ARI's office exposure, is the massive wall of debt maturing in 2025.

Here's the quick math on the near-term risk:

• Total CRE loans maturing in 2025: approximately $957 billion.
• Office CMBS loan delinquencies: hit 11.8% as of November 2025, nearly six times the 2019 rate.
• Office property sales volume: totaled only $45.4 billion in the first nine months of 2025, less than half of the 2019 figure.

This decline in transaction volume and increase in delinquencies defintely signals a deep distress cycle. You need to be actively managing any office exposure, focusing on the quality of the borrower and the asset's location.

Strong, recession-resistant demand for multifamily and residential properties.

The social trend of affordability challenges and demographic shifts-the 'Generation Rent' phenomenon-is fueling robust demand for residential and multifamily properties. This is a strong tailwind for the sector, making it a resilient asset class in the current environment. Apollo Commercial Real Estate Finance has been strategically leaning into this trend.

As of Q3 2025, residential loans now comprise approximately 31% of ARI's total loan portfolio, up from 25% in Q2 2025, making it the company's largest property type concentration. This thematic overweight is smart, as the multifamily sector is expected to see rent growth rebound to about 3% by the end of 2025, driven by a national housing shortage. This sector's performance is a clear counterbalance to the office market's struggles.

Growing demand for medical office space driven by the aging Baby Boomer demographic.

The aging U.S. population is creating a massive, predictable demand for healthcare real estate, particularly medical office buildings (MOBs). This is one of the most compelling long-term social trends you can invest in.

By the end of 2025, roughly 73 million Baby Boomers will be 65 or older, representing more than one-fifth of the U.S. population. This demographic drives a disproportionate share of healthcare consumption; those over 65 comprise only 17% of the population but account for 37% of all healthcare spending. This is a significant driver of real estate value.

The Medical Office Building market reflects this strength:

The shift to outpatient care-with over 80% of surgeries now performed outside hospitals-further supports the need for distributed MOBs, often in suburban and retail districts closer to patient populations. This trend offers a stable, high-quality lending opportunity.

Increased focus on 'flight to quality' assets, polarizing property performance.

Social changes in work culture have created a bifurcated (two-tiered) real estate market, where asset performance is highly polarized. Tenants are overwhelmingly prioritizing 'flight to quality,' meaning they move to newer, amenity-rich, and strategically located properties to support hybrid work and attract talent.

What this estimate hides is the utter collapse in demand for older, lower-quality buildings. In Q1 2025, Class-A office space absorbed more than 2 million square feet, while Class-B and Class-C properties continued to shrink. The prime office vacancy rate of 14.5% (as of Q2 2025) was a full 4.8 percentage points lower than the non-prime vacancy rate, and this gap is expected to widen. This means ARI's lending strategy must be laser-focused on the highest-quality assets in resilient sectors (residential, medical office) and the top tier of the office market to mitigate risk.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Technological factors

Significant capital deployment into data centers and tech infrastructure

The technological shift toward Artificial Intelligence (AI) and cloud computing has fundamentally altered the commercial real estate landscape, creating a new, high-demand asset class in data centers. You see this directly reflected in the strategy of Apollo's broader platform, which acts as a key indicator for Apollo Commercial Real Estate Finance, Inc. (ARI)'s investment focus.

Apollo-managed funds, the external manager's affiliates, have been aggressively deploying capital into next-generation infrastructure, including digital platforms and compute capacity, with approximately $38 billion invested since 2022. This is a massive commitment. The firm estimates that data centers alone will require 'several trillion dollars' of global investment over the next decade. For ARI, this translates into a strong pipeline opportunity, as the company's Chief Investment Officer noted increased activity in the data center property type in early 2025.

This is a clear move to finance the infrastructure that powers the digital economy. Your investment thesis must account for the collateral shift from traditional office space to digital infrastructure. It's a simple supply-and-demand equation.

Artificial Intelligence (AI) and automation drive demand for power and logistics real estate

The AI boom is a massive tailwind for specific real estate sectors, particularly logistics and data centers, due to their immense power and space requirements. The demand for compute capacity is driving a real estate shortage in key areas.

Data centers are a prime example, boasting an exceptionally low 2.3% vacancy rate in 2025. Furthermore, automation is reshaping the industrial sector. Companies are rapidly moving out of older warehouses (built before 2000) and into modern facilities that can accommodate AI-powered logistics. This shift has resulted in new warehouses (built after 2022) seeing an absorption of +200 million sq. ft., driven by the need to facilitate the use of automation and AI. This is a direct, quantifiable demand for new, high-specification commercial mortgages that ARI is well-positioned to originate. The demand for power and logistics space is not a cyclical trend; it's a structural necessity for the modern economy.

Digital transformation in lending increases speed and accuracy of underwriting (due diligence)

In commercial real estate lending, digital transformation is no longer optional; it is a competitive necessity. The integration of AI and machine learning (ML) into the underwriting process drastically reduces processing times and improves risk assessment accuracy.

Using AI algorithms to analyze vast datasets-including property performance and market trends-lenders can make faster, more accurate decisions. This digital due diligence process is cutting down loan processing times from weeks to days. For a non-bank lender like ARI, adopting these technologies is crucial for maintaining a competitive edge against both traditional banks and nimble fintechs. Lenders who fully embrace this technology are projected to see a 3-5x increase in efficiency. This efficiency gain directly impacts your bottom line by increasing loan volume capacity and lowering operational costs per loan.

The shift is moving from instinct-based lending to data-driven risk management. Here's a look at the impact of this digital transformation on the lending cycle:

Increased use of property technology (PropTech) to optimize asset management and costs

The widespread adoption of property technology (PropTech) is creating a more efficient and profitable collateral base for ARI's loans. PropTech leverages technologies like the Internet of Things (IoT), AI, and Big Data to optimize the operation and management of commercial properties.

The market impact is clear: over 60% of real estate firms now use some form of AI or machine learning to gain a competitive edge. For asset managers, this means:

• Predictive maintenance, reducing unexpected capital expenditures.
• Energy efficiency optimization, lowering operating expenses.
• Automated tenant communication, improving retention.

The McKinsey Global Institute estimates that AI could generate $110 billion to $180 billion in marketplace value for real estate enthusiasts, which is a massive incentive for property owners to adopt these tools. For instance, some firms leveraging AI have reported a 7.3% increase in productivity and a 5.6% enhancement in operational effectiveness. This technological optimization improves the net operating income (NOI) of the underlying properties, making ARI's collateral stronger and more resilient, which defintely lowers credit risk.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Legal factors

Evolving local zoning laws to permit mixed-use and office-to-residential conversions

You need to pay close attention to local zoning shifts, as they are creating a new path for distressed office and retail assets, which directly impacts the value of Apollo Commercial Real Estate Finance, Inc.'s (ARI) collateral. The legal landscape is moving to de-risk these conversions, making them a more viable exit strategy for certain loans.

For example, in major metros, new laws are streamlining the conversion process. Washington D.C. approved emergency legislation in March 2025 to allow a property to be reclassified from Class 2-commercial to Class 1-residential once a building permit is issued, not just when the project is complete. This is a huge financial win for developers, as the Class 2 property tax rate, which ranges from $1.65 to $1.89 per $100 of assessed value, is roughly double the Class 1 residential rate of $0.85 to $1.00 per $100. That's a massive saving on holding costs.

Also, in states like Connecticut, a bill signed in 2025 requires municipalities to adopt regulations allowing commercial-to-residential conversions 'as of right,' meaning without a lengthy public hearing or special exception. Plus, these conversions are protected by a three-year tax assessment freeze after the certificate of occupancy is issued. ARI, as a lender, benefits from this clearer, faster, and cheaper path to property repurposing, which supports the underlying value of loans tied to underperforming office assets.

Stricter underwriting standards and increased lender risk aversion due to market volatility

Honestly, the narrative of 'stricter underwriting' is getting more nuanced in 2025. While the market remains volatile, the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) from April 2025 showed a significant easing in overall bank tightening. Only 9.0% of banks reported tightening commercial real estate (CRE) lending standards on a net basis, which is a dramatic drop from 20.2% in April 2024 and a peak of 67.4% in April 2023.

However, this easing is sector-specific. Lenders like ARI are still facing regulatory and market pressure to be highly selective, especially in the office and retail sectors. The risk aversion has simply shifted its focus. You'll see a tougher stance on two key areas:

• Cash Flow Durability: Lenders are stressing Debt-Service Coverage Ratios (DSCR) more than ever to mitigate default risk on refinancing loans.
• Climate Risk: New underwriting criteria incorporate climate risk assessments, which can lead to reduced Loan-to-Value (LTV) ratios and higher reserve requirements for properties in high-risk climate areas like flood zones.

Here's the quick math: the easing of underwriting standards in April 2025 implies a 69% probability that unlevered commercial property values in the ODCE Index will post positive gains in the second half of 2025, with an estimated annual growth of 3.9%. This suggests a bottoming out of the market, which is a positive signal for ARI's portfolio.

Potential changes to key tax provisions like 199A deductions and bonus depreciation

The biggest legal development for REITs like ARI in 2025 is the passage of the 'One Big Beautiful Bill Act' (OBBBA) in July. This legislation provided critical certainty and incentives that directly impact real estate investment and development, and thus the demand for ARI's loans.

The most important changes for your investors and borrowers are the permanent extensions of key tax benefits that were scheduled to sunset:

• Section 199A Deduction: The 20% Qualified Business Income (QBI) deduction for Qualified REIT Dividends was made permanent, eliminating the scheduled termination date after 2025. This is defintely a boon for individual investors in ARI stock.
• Bonus Depreciation: The OBBBA permanently restored 100% bonus depreciation for qualifying property acquired on or after January 20, 2025. This provides a massive upfront tax shield for developers and property owners, spurring new investment in qualified improvement property.

Also, the limit on the value of assets held in a Taxable REIT Subsidiary (TRS) within a REIT's portfolio is set to increase from 20% to 25% for tax years starting after December 31, 2025. This gives ARI more flexibility to hold non-real estate assets or engage in non-REIT-qualifying activities, which can be a competitive advantage in complex financing structures.

Increased litigation risk related to commercial lease disputes and tenant rights

While commercial leases are typically governed by contract law, a clear legal trend in 2025 is the expansion of statutory protections for commercial tenants, particularly small businesses, increasing litigation risk for landlords and, by extension, their lenders like ARI.

This pro-tenant momentum forces commercial landlords to adjust their operational and legal strategies. In California, for example, a new regulatory regime for 'qualified commercial tenants' (like microenterprises with five or fewer employees or restaurants with fewer than 10 employees) now mandates specific, longer notice periods.

The direct impact on a lender's collateral is clear in the new notice requirements:

This extension of notice periods makes it harder and slower for a landlord to remove a non-performing tenant or raise rents, which directly impairs the property's cash flow and, crucially, its valuation in a foreclosure scenario. ARI must factor this increased legal friction and potential for prolonged lease disputes into its underwriting of commercial mortgage loans.

Finance: draft 13-week cash view by Friday, explicitly modeling the impact of a 90-day rent increase notice period on a hypothetical default scenario.

Apollo Commercial Real Estate Finance, Inc. (ARI) - PESTLE Analysis: Environmental factors

Emerging ESG (Environmental, Social, and Governance) requirements impacting loan underwriting

The integration of Environmental, Social, and Governance (ESG) factors is no longer a peripheral concern for commercial real estate (CRE) lending; it is central to the underwriting process in 2025. Lenders, including Apollo Commercial Real Estate Finance, Inc. (ARI), are now conducting sustainability assessments, evaluating a property's environmental impact and its resilience to climate-related risks alongside traditional financial metrics. This means a building's energy usage, waste management, and carbon emissions are key factors in due diligence.

For Apollo Commercial Real Estate Finance, Inc., which is externally managed by an indirect subsidiary of Apollo Global Management, this translates into a formal policy of integrating financially material sustainability factors into investment analysis and due diligence. Properties that do not meet evolving sustainability standards are starting to see value depreciation and may struggle to secure financing on favorable terms. Conversely, assets with strong environmental credentials are now eligible for green bonds and sustainability-linked CRE loans, which often provide preferential financing terms. It's a simple risk-adjusted return calculation now.

Lender pledges for net-zero carbon financing, increasing costs for non-compliant assets

The financial sector's commitment to net-zero targets is creating a significant transition risk for the CRE sector. Apollo Global Management has already achieved carbon neutrality for its corporate operations (Scope 1 and 2 greenhouse gas emissions) for the 2024 calendar year, primarily through the purchase and retirement of voluntary carbon offset credits and Renewable Energy Certificates (RECs). More importantly for Apollo Commercial Real Estate Finance, Inc.'s business, the parent company has set firm-wide targets to deploy, commit, or arrange $50 billion by 2027 and more than $100 billion by 2030 toward clean energy and climate capital opportunities.

This massive capital redirection means that carbon-intensive, non-compliant assets will face a 'credit squeeze,' leading to reduced capital availability and increased borrowing costs. Underwriting now demands that borrowers demonstrate a clear path to resilience and decarbonization. Apollo Commercial Real Estate Finance, Inc. is proactively addressing this by prioritizing real estate designed to integrate climate solutions and investing in retrofitting existing properties to improve their environmental and financial performance.

• Non-compliant assets face higher credit risk.
• Lenders require robust decarbonization plans for financing.
• Retrofits offer a clear path to better financing terms.

Growing focus on climate risk disclosure for CRE assets, affecting valuations

Regulatory pressure is forcing greater transparency on climate-related financial risk, directly impacting how CRE assets are valued. The U.S. Securities and Exchange Commission (SEC) is anticipated to mandate comprehensive climate-related disclosures, including greenhouse gas emissions and climate risk assessments, by 2025. This will provide investors with transparent, comparable ESG information, making it impossible to hide poor environmental performance.

In response, Apollo Global Management has begun conducting climate scenario analyses for its portfolio, applying a pilot study to $49.6 billion of its managed assets to model how physical and transition risks could affect asset values under different global warming scenarios. This kind of forward-looking analysis is now a standard part of risk management. Properties that fail to demonstrate climate resilience or a credible decarbonization plan face valuation penalties, as the market prices in the cost of future retrofits or potential obsolescence.

Higher insurance costs for properties in climate-vulnerable areas

The physical risk of climate change is translating directly into higher operating costs and increased default risk for CRE loans, which Apollo Commercial Real Estate Finance, Inc. must underwrite. U.S. commercial real estate insurance premiums have risen by 88% since 2020, driven by escalating climate-related claims. Insurers are responding by increasing premiums, reducing coverage, or exiting high-risk markets entirely, forcing lenders to factor in climate risk and insurer sentiment during underwriting.

The cost disparity between high-risk and low-risk locations is widening significantly. Here's the quick math on the projected average monthly insurance cost increase for a commercial building in the U.S. by 2030, based on a 2023 baseline:

For Apollo Commercial Real Estate Finance, Inc., a loan collateralized by a property in a high-risk state like Florida or Texas, where premium increases are significant, now carries a higher operational expense risk that directly impacts the property's Net Operating Income (NOI) and, therefore, its debt service coverage ratio (DSCR). This rising cost of insurance is a defintely a key factor in determining loan-to-value (LTV) ratios and reserve requirements.