A tool central banks could use to meet their now mul-tipletargetsin addition to the short-term interest rate is asset-based reserve requirements (ARRs).25 ARRs would require private banks to hold a certain proportion of their loans in designated high-priority areas or else hold the same proportion of their total assets in non-interest bearing reserve accounts. This system would incentivize but not require banks to lend in priority areas, given that they would incur a cost of holding reserves in reserve accounts that do not pay interest. This is a flexible method for directing credit to priority areas.