Question

• Why does the Central Bank require commercial banks to have reserves? Explain why reserves are an asset to commercial banks. What are excess reserves? How do you calculate the amount of excess reserves held by a bank? What is the significance of excess reserves?

Answer 1

1.Why does the Central Bank require commercial banks to have reserves?

Central Bank require commercial bank to have reserve, because hold amount or fund reserve by bank have to ensure that it's able to meet liabilities for emergency withdrawals, and Reserve require As a tool by Central Bank to increase or decrease by supply in the economy and influencing interest rate,

That's why Central Bank always require commercial bank to have reserve.

2.Explain why reserves are an asset to commercial banks.What are excess reserves?

Definitely reserve are asset of commercial banks cause available fund or cash belonging to them or related to them, and also commercial banks claim against Federal Reserve Bank that reserve is our asset.

Deposited amount in failed it is related to fade because of that this Reserve is asset commercial bank.

Access reserve means simply cash fund hold by banks over and above the federal reserve requirements,

Because of emergency withdrawals, commercial bank increase their reserve Federal bank requirement.

3.How do you calculate the amount of excess reserves held by a bank?

For calculating amount of excess reserve held by a bank then excess Reserve by subtracting the required reserve of the legal reserve hold by the bank.

For example

If the resulting number is $100000 then there are Excess Reserve is $100000

Another income please if the resulting number is 0 then there are No excess reserve

4.What is the significance of excess reserves?

Significance of excess reserve is like Safety Buffer of sorts, means any bank for carry Excess fund which have an extra measure of safety in the event of sudden loan loss or withdrawal and significant or important of cash withdrawals by customers this buffer increases the safety of the banking system specially in time of economical uncertainty because of that type of crisis Bank have to hold sufficient reserve.