This paper uses a counterfactual experiment to analyze the effects of reducing the required reserve ratio in the Taiwan banking industry in 2008. This paper finds that the decrease in the required reserve ratio led to an increase in the deposit interest rate but reduced the loan rate. In such an instance, liquidity increases since a higher deposit interest rate attracts savings and a lower loan rate increases the demand for investment. In addition, the results show that the decrease in the required reserve ratio enhanced the welfare of banks, as well as savers and borrowers.