Excess Reserves

Excess Reserves
Capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities. These required reserve ratios set the minimum liquid deposits (such as cash) that must be in reserve at a bank; more is considered excess.

Financial firms that carry excess reserves have an extra measure of safety in the event of sudden loan losses or cash withdrawals by customers. This may increase the attractiveness of the company that holds excess reserves to investors, especially in times of economic uncertainty. Boosting the level of excess reserves can also improve an entity's credit rating, as measured by ratings agencies like Standard & Poor's.

Reserves need to be in liquid forms of capital such as cash in a vault, which does not create income. Banks will therefore try to minimize their excess reserves by lending the maximun allowable amount to borrowers.

Investment dictionary. . 2012.

Игры ⚽ Поможем написать реферат

Look at other dictionaries:

  • Excess reserves — are bank reserves in excess of the reserve requirement set by a central bank (in the United States, a Federal Reserve Bank; in Canada, the Bank of Canada). Holding excess reserves is generally considered costly and uneconomical as no interest is… …   Wikipedia

  • excess reserves — Higher reserves than required, held by banks. This usually undesirable state occurs as a result of poor demand for loans or high interest rates. Banks often sell excess reserves to one another …   Big dictionary of business and management

  • excess reserves — Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves. Bloomberg Financial Dictionary Actual reserves that exceed required reserves. Bloomberg Financial Dictionary …   Financial and business terms

  • Excess reserves — Any excess of actual reserves above required reserves. The New York Times Financial Glossary …   Financial and business terms

  • excess — 1) An initial sum which the holder of an insurance policy must bear before any claim is met by the insurer. It is most often used in car insurance, e. g. the first £50 of any claim has to be borne by the insured party. 2) A bank or other… …   Big dictionary of business and management

  • Working Reserves — Reserves held by banks above the required minimum level or cash reserve ratio mandated by regulations and laws. Working reserves are normally in the form of vault currency, deposits at other banks, cash being collected and excess reserves held as …   Investment dictionary

  • Excess Crude Account — A Nigerian government account used to save oil revenues above a base amount derived from a defined benchmark price. The Excess Crude Account was established in 2004, and its objective is primarily to protect planned budgets against shortfalls due …   Investment dictionary

  • Free reserves — Excess reserves minus member bank borrowings at the Fed. The New York Times Financial Glossary …   Financial and business terms

  • free reserves — excess reserves minus member bank borrowings at the Fed. Bloomberg Financial Dictionary …   Financial and business terms

  • Foreign-exchange reserves — Foreign exchange Exchange rates Currency band Exchange rate Exchange rate regime Exchange rate flexibility Dollarization Fixed exchange rate Floating exchange rate Linked exchange rate Managed float regime Markets Foreign exchange market Futures… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”