Thursday, April 30, 2009

Managing the money position of a bank

the entry of a commercial bank into the money market comes in connection with the management of its money position, which means the management of the liquid assets of the bank in such a manner as to avoid either excesses or deficiencies of required reserves on an average daily basis for a reserve period, which is now a week-Thursday to Wednesday for all member banks. Required reserves for the current week are now determined by the average deposits of the bank in the reserve week two weeks prior to the current week. This change to a lagged period in computing reserve requirements for member banks was made by the federal Reserve Board in 1968. This change greatly assists the money desk manager in the minimization of excess reserve. Moreover, both excess reserves and reserves deficiencies may now be carried over into the next reserve week.

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