Excess Reserves Calculator

Formula

The formula to calculate the excess reserves is:

\[ \text{ER} = \text{LR} - \text{RR} \]

Where:

$ \text{ER} $ is the excess reserves ($).
$ \text{LR} $ is the legal reserves ($).
$ \text{RR} $ is the required reserves ($).

What are Excess Reserves?

Excess reserves refer to the amount of reserves that a bank holds over and above the required reserves. These are typically held at the central bank and represent the extra liquidity that the bank has available for lending or other purposes.

Example Calculation

Let's consider an example:

Legal Reserves (LR): $5,000,000
Required Reserves (RR): $3,500,000

Using the formula to calculate the excess reserves:

\[ \text{ER} = 5,000,000 - 3,500,000 = 1,500,000 \text{ dollars} \]

This means that the bank has excess reserves of $1,500,000.