Why does the Federal Reserve require that banks have reserve

Why does the Federal Reserve require that banks have reserves? What are excess reserves? How do you calculate the excess reserves held? 6.

Solution

The fed requires banks to have excess reserves to meet the situations of sudden loan loss or large amounts of cash withdrawals by the customers.It is basically a measure of safety which helps banks to function even in times of economic uncertainty.

Excess reserves are capital reserves held by banks or financial institutions in excess of what is required by the regulators or creditors.

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.