A bank that does not want to hold a lot of excess reserves but wants to manage liquidity risk is likely to:

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Holding a lot in highly liquid securities would allow the bank to quickly sell these securities to meet any unexpected cash outflows or to fund new loans. This would enable the bank to maintain liquidity without holding a lot of excess reserves. Making sure that most of its assets are in small business loans (choice B) or having a high ratio of loans to securities (choice C) would actually increase the risk of illiquidity for the bank. Limiting withdrawals by customers (choice D) is not a practical solution and is also likely to harm the bank's reputation and customer satisfaction.

A Bank That Does Not Want to Hold a Lot