Presentation Assignment Example | Topics and Well Written Essays - 250 words - 3

Presentation - Assignment Example From the time of financial crisis, American Banks increased their excess reserves in terms of cash funds held over and above the Federal Reserve requirement. Besides, Excess reserve increased from $1.9 billion in the year 2008 the month of August to $2.6 trillion in January 2015. Additionally, U.S banks are holding liquidity by pumping it into the economy through the Federal Reserve as excess reserves. Besides, instead of giving loans, implications lie in monetary policy and the real economy, elusive of current economic environment since its new and complex. Before the crisis in October 2008, costs and benefits of holding reserves went clear. The costs entailed benefits of guarding last minute outflows and foregone interest that requires immediate cash. Furthermore, depositor set aside money to cover emergency expenses, or investors hold reserves to enable them seize unforeseen opportunity (Craig and Koepke 1). Craig and Koepke suggest that the Simplicity of one to one correspondence between excess reserves and Federal Reserve balance sheet hides difficulty in predicting how banks behave in the presence of expanded reserves (1). Unfortunately, understanding this behavior is imperative deciding an appropriate policy that guards excess reserves