What are excess reserves?
Excess reserves are reserves led by a financial institution that exceeds the reserve standards set by regulatory agencies. There are a number of different reasons why financial institutions accumulate excess reserves, and can be dealt with in different ways, depending on the economic climate and the needs of the institution. Even with excessive reserves, it is important to realize that financial institution's reserves include only a fraction of the funds that the institution officially has on a deposit. The bank can increase reserves by hanging on cash and assets such as gold and can release them by lending and transfer reserves. For banks, maintenance of reserves is a gentle balance, because they usually do not receive excess reserves and therefore want to avoid too much surplus.
Having unnecessary reserves can improve the loan institutioning because it causes it to be financially safer. For example, in the case of banking traffic, the bank could be able to satisfy the needs of depositors who want to choose the financialthe means. This can also make the bank a more attractive investment for people who are interested in investing because a higher credit rating increases the chance of favorable revenues.
On the other hand, it may have the accumulation of excessive reserves inflation impact on the economy, which is not desirable. In addition, regulatory agencies that pay interest on reserves as an additional motivation to maintain reserves does not pay interest on excessive reserves, so the money literally sits in a bank vault and does nothing. With reservations that exceed the amount of reserves, in other words, it may not be a healthy fiscal policy for the bank if it maintains a temporary surplus for its own reasons.
Banks are not excluded excess reserves, and in fact it is sometimes recommended to build their reserves over a minimum. When banks decide to release their unnecessary reserves, they must do so carefully to avoid instability. It is also important to banShe has determined how and where the reserves will be released, a decision that may include input from multiple bank branches in the case of a chain bank. Branches may also decide to transfer reserves to meet different needs; For example, banks in the city where the main festival event takes place could want more money at hand than usual, because visitors will visit the automatic cashier machine for cash and that shops will need more money in sockets to change.