Excess Reserves
Excess reserves are funds that a bank holds in reserve beyond the amount required by regulators. Banks are required to hold a certain amount of reserves in order to meet the demands of their customers and to ensure the safety and soundness of the banking system. Excess reserves are funds that are held above and beyond the required amount. These funds can be used to make loans, invest in securities, or to cover unexpected losses.
History of Excess Reserves
The concept of excess reserves has been around since the early days of banking. Banks have always held some amount of reserves in order to meet the demands of their customers and to ensure the safety and soundness of the banking system. In the United States, the Federal Reserve System was established in 1913 and the Federal Reserve Act of 1913 required banks to maintain a certain amount of reserves. This requirement was later amended in the Banking Act of 1933, which required banks to maintain a certain percentage of their deposits in the form of reserves.
Since then, the Federal Reserve has continued to adjust the reserve requirements in order to maintain the stability of the banking system. In recent years, the Federal Reserve has implemented a number of policies that have resulted in an increase in excess reserves. These policies include quantitative easing and the purchase of mortgage-backed securities.
Table of Comparisons
| Required Reserves | Excess Reserves |
|---|---|
| Set by Federal Reserve | Above and beyond required amount |
| Used to meet customer demands | Can be used to make loans, invest in securities, or to cover unexpected losses |
Summary
Excess reserves are funds that a bank holds in reserve beyond the amount required by regulators. These funds can be used to make loans, invest in securities, or to cover unexpected losses. The concept of excess reserves has been around since the early days of banking and the Federal Reserve has continued to adjust the reserve requirements in order to maintain the stability of the banking system. For more information about excess reserves, please visit the Federal Reserve website or consult a financial advisor.
See Also
- Reserve Requirements
- Quantitative Easing
- Mortgage-Backed Securities
- Federal Reserve System
- Banking Act of 1933
- Federal Reserve Act of 1913
- Interest Rates
- Monetary Policy
- Liquidity
- Financial Stability
