Question

5. True, False, or Uncertain (select one and defend you selection): “Banks in the U.S. tend to hold small amounts of excess reserves (reserves held which are greater than required reserves). Explain.

Answer 1

If we talk about latest scenerio, Federal Bank (Central bank of US) made drastic changes in its policies regarding reserves and cut down the reserve requirement to 0% w.e.f March 26,2020 . Commercial banks just need to have some nominal amount of reserves in relative to the deposit liabilites it owes to the customer but it don't need to hold any excess currency in the form of reserves. So, we can say that statement is partially true as banks in the US now tend to hold a very very small percentage of reserves only that too is not mandatory for the banks as Federal bank has cut down the reserve requirement for banks to 0%