This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: minimum are called excess reserves. So, total reserves (TR) = required reserves (RR) + excess reserves (ER). Banks make profits by borrowing short (issuing deposits) and lending long (making loans). Liquidity Management Banks need to have sufficient reserves. Liquidity management refers to the acquisition of sufficiently liquid assets to meet the obligations of the bank to depositors. The bank manager needs to make sure that the bank has enough ready cash to pay its depositors when there are deposit outflows. If a bank has ample reserves, a deposit outflow does not necessitate changes in other parts of its balance sheet. Suppose the bank had no excess reserves. options: 1. reduce loans by $9m 2. sell $9m of securities 3. borrow reserves from the Fed 4. borrow from other banks or corporations Banks hold excess reserves as insurance against the costs associated with deposit outflows and to prevent bank failures....
View Full Document