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excess reserves |
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Excess reserves Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves. Excess reserves Actual reserves that exceed required reserves.
excess reserves Money a bank keeps in addition to the legally required reserves. Historically, most banks have kept little or nothing in excess reserves because they earn no interest on excess reserves. Government policies such as FDIC deposit insurance encouraged keeping less in reserves because banks were not required to cover all withdrawals in the event of a run. However, in the United States, the Emergency Economic Stabilization Act of 2008 allowed the Federal Reserve to pay interest on excess reserves, which is began doing in October 2008. In the ensuing months, the amount of excess reserves in American banks increased substantially. This is thought to have reduced insolvency risk for banks by encouraging them to keep more money on hand, but critics contend that this discourages banks from lending. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| At a five percent reserve requirement, a one-million dollar excess reserve allows a bank to extend twenty million dollars in new credits. Nonetheless, the funds rate will firm if the level of balances falls so low that some banks have difficulty finding sufficient funds to cover late-day deficits in their Federal Reserve accounts, and the rate will soften if balances are so high that some banks risk ending a period holding unusable excess reserve balances. Ballantyne Re issued the notes to finance excess reserve requirements under Regulation XXX for the ceded block of business. |
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