Banks tend not to hold a lot of excess reserves because:

Question

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Reserves present a large opportunity cost in the form of foregone interest. Banks would rather invest those funds in securities or lend them out to earn a return rather than hold them in reserves with the Federal Reserve earning no interest. Regulators actually incentivize holding a certain amount of reserves as a safety buffer, rather than penalize banks for holding excess reserves. Holding excess reserves would not increase a bank's leverage and using funds to buy stock would not be a typical use of excess reserves.

Banks Tend Not to Hold a Lot of Excess Reserves