Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves
A)are disliked by depositors.
B)means lower profits for banks.
C)are discouraged by government regulators.
D)All of these responses are correct.

Question

Quizplus · Accepted Answer

Holding excess reserves means that the bank is not able to use that money for lending or investing, which means lower profits for the bank. This is why bankers do not like to hold excess reserves, even though it would make them less vulnerable to runs. The other options are not necessarily true - depositors do not have a strong opinion on excess reserves and government regulators may actually encourage banks to hold excess reserves as a way to improve their safety and stability.

Excess Reserves Make a Bank Less Vulnerable to Runs, but Bankers