A bank sometimes holds excess reserves primarily to be sure it can meet its customers’ demands. Excess reserves are the funds that a bank keeps on hand beyond the required minimum set by regulatory authorities. Holding excess reserves helps banks ensure they have enough liquidity to meet withdrawal requests and cover any unexpected increases in deposit withdrawals, among other operational needs. Additionally, during times of economic uncertainty or when the financial markets are volatile, banks may choose to hold more excess reserves as a precautionary measure.
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Why does a bank sometimes hold excess reserves?
to keep from lending too much money
to make check clearing easier
to protect against high prices
to be sure it can meet its customers’ demands
1 answer
1 answer