What are bank reserve deposits? This is in context with the line I read - “Bank reserve deposits are a small part of the Fed’s liabilities”. Thanks in advance,
My understanding is that banks have a % minimum deposit required as instructed by the Fed. Perhaps this means the bank literally has to deposit it at the Fed’s building. The logic behind this is the Fed does not want banks to extend extensive credit in event of a bank run and so forth. This also is another way to monitor money supply. A caveat: This is what I remember from my financial institution class at school. I have not yet read this is the CFA text.
Yep or in cash in their vault. The reserve requirement is a potent tool in controlling the money supply because of the multiplier effect (which is discussed somewhere in your readings).
The amount (as a % of the $ deposited with that bank) sits in bank’s vault, or with a central bank, ready to cover withdrals. It is indeed an imposed minimum %, just al KJH said, % used to limit bank’s lending and instrument to control monetary policies.