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Why bank reserves important ?
2- I heard that bank reserves can Change interest rates , how bank reserves change interest rates ?

Thanks in advance .

Bank reserves are important for 2 reasons.  First, they ensure that banks keep enough money on-hand to fulfill withdrawal requests.  In other words, when you put money into a bank, the bank lends that money out as loans.  That's how banks earn their money.  If they lend too much, though, they will not have enough when people withdrawal their money.  So they keep enough on hand to ensure they can handle withdrawals.  The second reason bank reserves are important is because they are one tool of monetary policy that control the amount of money in circulation in the economy - the money supply.  When bank reserves requirement increase, then banks are keeping more money stashed-away, then that money is being distributed (spent or lent), so there's less money in circulation.  When bank reserve requirements decrease, then more money is in circulation.  This can play an influence on interest rates because when bank reserve decrease then the banks have more money to lend, which allows them to charge less interest to generate higher revenues by attracting more borrowers.  When bank reserve requirements increase, that can put pressure on banks to raise interest rates in order to make enough revenues while making fewer loans.  Note, that the bank reserve requirements, by themselves, will not necessarily change interest rates, but they will put pressure on the banks to change them.


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Michael Taillard


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Economic Consulting: American Red Cross; US Strategic Command -- Economics Lecturing: Bellevue University (Bellevue, NE) Huijia College (Beijing), OPII Schools (Omaha), Madonna University (Livonia), Schoolcraft College (Livonia), ZomBCon (Seattle), Zombiefest (Lincoln) -- Media Appearances: Dead Man Working (2012 Movie documentary), The Heartland News (Omaha local news outlet)

American Economics Association, Business Networks International, Midwest Writer's Guild, Zombie Research Society

Economics and Modern Warfare: The Invisible Fist of the Market (Palgrave Macmillan) -- 101 Things Everyone Should Know about Global Economics (Adams Media) -- Corporate Finance for Dummies (Wiley) -- Psychology and Modern Warfare (Palgrave Macmillan) -- Analytics and Modern Warfare (Palgrave Macmillan)

PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

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Philanthropy awards and nominations for the OPII Schools economic experiment

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