6. Required and excess reserves Suppose that Second Republic Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.   Second Republic Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)

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Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.