G. J. Santoni shows that the reserve requirements imposed on financial institutions have the properties of a tax. With the aid of some simple examples, the author demonstrates that this reserve tax varies with the interest rate and, prior to 1980, had differential effects on the earnings streams and capital values of banks. These differential tax effects are important. Equity considerations aside, they artificially raise the operating cost of some firms relative to others engaged in essentially the same business. This distorts the rates of production among the differentially taxed firms and lowers the value of output for given costs. Santoni discusses an important change in the tax embodied in the Monetary Control Act of 1980. Specifically, the act raised reserve requirements for firms that are not members of the Federal Reserve System while lowering them for member banks. The paper shows that the more uniform reserve requirements have significantly reduced the differential effect of interest rate changes on the stock prices of these two types of banks. The legislation has raised the after-tax earnings streams and stock prices of member banks, other things the same, while lowering both for nonmember banks.