When a commercial bank has excess reserves,
A) it is in a position to make additional loans.
B) its actual reserves are less than its required reserves.
C) it is charging too high an interest rate on its loans.
D) its reserves exceed its assets.

Question

Quizplus · Accepted Answer

Excess reserves are reserves held by a bank over and above its required reserves. When a commercial bank has excess reserves, it means it has more money than it needs to maintain the required reserve ratio set by the central bank. This puts the bank in a position to make additional loans and thus earn a profit on the interest charged on those loans. Therefore, the correct choice is A.

When a Commercial Bank Has Excess Reserves