Banks use excess reserves to make loans to customers so that they can make profits on the interest Commercial banks cannot use excess reserves to make common loans. They can only use them to make loans to other banks who may need more required reserves. Excess reserves increase the monetary base but do not enter the M1 or M2 money supply. The only entity that can effect the total excess reserves is the Federal Reserve. When the fed decides to reduce its balance sheet, it will sell assets in the market and reduce an equal amount of excess reserves.
Secondary Reserves- Assets that are invested in safe, marketable, short-term securities.Primary Reserves- Cash required to operate a bank.here is a third one...Excess Reserves- Capital reserves held by a bank in excess of what is required.
reserving bank
Excess Reserves
excess reserves
Banks use excess reserves to make loans to customers so that they can make profits on the interest Commercial banks cannot use excess reserves to make common loans. They can only use them to make loans to other banks who may need more required reserves. Excess reserves increase the monetary base but do not enter the M1 or M2 money supply. The only entity that can effect the total excess reserves is the Federal Reserve. When the fed decides to reduce its balance sheet, it will sell assets in the market and reduce an equal amount of excess reserves.
They dont loan out their excess reserves. They only have excess reserves because they dont have loan demand from qualified borrowers and the marginal return from an average loan is greater than the interest paid on the excess reserves. IE they have to receive a marginal return of X amount above .25% they now receive on their excess reserves from a borrower SO 1. They have to loan demand 2. Qualified borrower 3. Net marginal return of higher than the amount of interest they receive on their reserves.
Secondary Reserves- Assets that are invested in safe, marketable, short-term securities.Primary Reserves- Cash required to operate a bank.here is a third one...Excess Reserves- Capital reserves held by a bank in excess of what is required.
reserving bank
Excess Reserves
Banks use excess reserves to make loans to customers so that they can make profits on the interest.
Excess reserves will be released two times a year after initial hold.
Because, the excess reserves they hold are going to stay idle in their vaults (safe deposit boxes) and are not going to earn any money for them. Instead if they loan it out to customers, they can earn an interest on the same. So banks try to keep their excess reserves as low as possible.
excess reserves
excess reserves
excess reserves
to be sure it can meet its customers' demands