Why Do Banks Avoid Holding Excess Reserves

question 66

Multiple Choice

Why do banks avoid holding excess reserves?

• A)The Fed levies a 10% penalty on any reserves held above the required level.
• B)The Fed does not pay interest on reserves.
• C)Savers are often reluctant to place their deposits with banks that hold excess reserves.
• D)The Office of the Comptroller of the Currency monitors excess reserves more closely than any other bank asset.

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Definitions:

Make Restitution

The act of compensating for loss, damage, or injury caused, often in the context of legal or financial remedies.

Personal Performance

The execution of tasks or duties by an individual based on their own skills and efforts.

Reasonable Person

A hypothetical individual who exercises average care, skill, and judgment in conduct, serving as a legal standard.

Mutual Rescission

An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract. The object of the agreement is to restore the parties to the positions they would have occupied had no contract ever been formed.