Excess reserves

Excess reserves refer to the amount of reserves that a bank holds above the minimum required reserves mandated by regulatory authorities, such as central banks. Reserves are the funds that banks are required to hold in cash or deposit at the central bank and are intended to ensure that banks have enough liquidity to meet withdrawal demands from depositors and to settle transactions. The required reserves are typically expressed as a percentage of a bank's deposits, while any reserves held beyond this percentage are considered excess reserves.