If a bank has negative excess reserves,

Question

Quizplus · Accepted Answer

Excess reserves are the reserves that a bank keeps in addition to the required reserves. So, negative excess reserves mean that the required reserves are greater than the actual reserves the bank possesses. This situation can arise due to an increase in withdrawals or a decrease in deposits. It does not necessarily mean that the bank is bankrupt, but it may need to borrow funds or sell assets to meet the reserve requirements. However, the bank can still continue to make loans.

If a Bank Has Negative Excess Reserves