What are a bank''s primary reserves, Financial Management

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What are a bank's primary reserves? When the Fed sets reserve requirements, what is its primary goal?

Vault deposits and cash in the bank's account at the Fed are used to persuade these reserve requirements they are called as primary reserves.  These primary reserves are those non interest earning assets held by monetary institutions.

The Federal Reserve needs all commercial banks to keep a least amount of reserves on hand to meet the withdrawal demands of its depositors and to pay other obligations as they come due.  Many would dispute, conversely, that the reserve requirement is put more with financial policy in mind than to make sure that banks meet their depositors' withdrawal requests.

 


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