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

Question

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Holding highly liquid securities allows the bank to easily convert them into cash if needed to manage liquidity risk, without requiring a large amount of excess reserves to be held. This also avoids tying up too much of the bank's funds in illiquid assets such as small business loans, which could increase liquidity risk. Limiting withdrawals by customers is not a sustainable solution and could harm the bank's reputation and customer trust. A high ratio of loans to securities could increase the risk of default and create liquidity problems.

A Bank That Does Not Want to Hold a Lot