surplus balances above what banks are legally required to hold to meet reserve requirements. Excess reserves can be held as vault cash, reserve account balances in a Federal Reserve Bank, or in a pass-through account at a correspondent. Excess reservesin the banking system can result from weak loan demand or high interest rates and tight money by the Federal Reserve. Banks sell excess reserves to one another in the Federal Funds market.
money a bank holds over and above the reserve requirement. The money may be on deposit with the Federal Reserve System (FED) or with an approved depository bank, or it may be in the bank's possession.
money a bank holds over and above the reserve requirement. The money may be on deposit with the Federal Reserve System or with an approved depository bank, or it may be in the bank's possession. For instance, a bank with a reserve requirement of $5 million might have $4 million on deposit with the Fed and $1.5 million in its vaults and as till cash. The $500,000 in excess reserves is available for loans to other banks or customers or for other corporate uses.
