excess reserves


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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.

excess reserves

The reserves held by banks and thrifts in excess of what is required by the Federal Reserve. Large excess reserves indicate a potential for credit expansion and reduced interest rates that could prove beneficial to the security markets. Conversely, small excess reserves indicate reduced possibilities for credit expansion and a relatively tight monetary policy by the Federal Reserve. Compare required reserves.
References in periodicals archive ?
It then shows that the quantity theory of money has not really been put to the test after the Great Recession, because a sharp increase in banks' excess reserves and corresponding sharp decline in the 'money multiplier' has meant that the rise in the Federal Reserve's balance sheet has not translated into increased money available to the public in the usual fashion.
Consequently, banks have taken the large injections of liquidity from the Federal Reserve and held them as interest-bearing excess reserves, which are the reserves held by banks over the required amount.
banks holding the liquidity being pumped into the economy by the Federal Reserve as excess reserves instead of making more loans?
Before we attempt to forecast future Federal Reserve policy, we need to examine the history of the Fed and how the financial crisis created some never-before-used policies such as paying interest on excess reserves.
Recently, Fisher said that excess reserves piling up in the US banking system could lead to more inflation.
Depository institutions maintain excess reserves as a safeguard against overdrafts of their account at the Federal Reserve, or against insufficient clearing balances or required reserves.
Monetary aggregates in the world's oil superpower also recorded slow growth last year mainly due to a decline in the banks' excess reserves with the Saudi Arabian Monetary Agency (SAMA), the country's central bank, National Commercial Bank (NCB) said in a study sent to the press.
Initially, different rates were paid on required reserves and excess reserves.
The Central Bank of Jordan (CBJ) on Sunday announced that the volume of excess reserves is JD 3.
Perng noted that excess reserves at banks have plunged to NT$30 billion, from NT$100 billion previously, adding that the CBC will continue mopping up excess funds in the market via open-market operation.
The Bank added that the volume of excess reserves, including overnight window deposits held at CBJ, is JD3.