What are borrowed reserves?

In the United States, borrowed reserves relate to the amount of funds that are extended to the Federal Reserve Bank system by the Federal Government. The purpose of the borrowed reserve is to allow any banks that are classified as the Federal Reserve Membership Bank to maintain the request for the reserve necessary for operation. In most cases, the amount of request is calculated on the basis of the percentage of demand deposits and time deposits held by the bank. In some areas, the reserve requirement is referred to as a reserve ratio. The borrowed reserves are made available to ensure that Member Banks are able to ensure assistance in the reserve ratio, regardless of the current economic conditions.

Since the extension of borrowed reserves provides Fed and transferred through the system of federal reserve banks that are in operation throughout the country, Member Bank must submit the application through the channel process to request a reserve amount. The reason for the application may vary from one situation to the other and is often simply allowed to fulfill the Member Bank of a temporary set of circumstances and still manage to leave the minimum amount of reserves at hand to comply with the banking laws.

The Federal Government sets the requirements for the application and extension of borrowed reserves and also defines the process to be followed to undergo the application. From time to time, changes are made in this process, prolonging the delay time to allow all Members' banks to adjust their internal procedures to allow revisions. In general, there is a USUALLY in a member bank that has received borrowed reserves, there is no big problem if the documents are in the right order, and the Member Bank fully meets the conditions associated with the borrowed reserve agreement.