Wednesday, May 20, 2009

excess member bank reserves

Total and excess reserves of member banks are affected through open market operations or through changes in reserve requirements. Excess reserves of member banks are equal to total reserves minus required reserves. When the Federal Reserve lowers reserve ratio requirements,or when it provides added bank reserves through open market operations,the immediate effect of these actions is to increase excess reserves of member banks. Ordinarily,it can be assumed that added excess reserves will be quickly put to work earning more profits for the bank in increased loans or increased investments.
But this profit motive to utilize virtually all increases in excess reserves seems to be stronger for large city banks than for smaller banks. Although in recent years all banks have tended to ave small amounts of excess reserves,the tendency of large city banks in New York City and Chicago to approach zero excess reserves .In some months in 1976 these banks even had negative excess reserves,which indicates the extent of their efforts to maximize their profits by tending toward zero excess reserves.
Borrowings in this period were relatively small from the Federal Reserve banks,since this was a period of credit easing and loanable funds were in ready supply. The bulk of member bank reserves were held at the regional Reserve banks.Nevertheless some $7.5-$8.5 billion were held as vault cash in the form Federal Reserve banks in the of currency and coin to satisfy the cash needs of customers.there was some increase in borrowings at the federal Reserve Banks in the last quarter of 1976 and some increase in borrowing at the federal Reserve Banks in the last quarter of 1976 and some increase in holdings of currency and coin.

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2- [[Primary Bank Reserves ]]:

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