Working Reserves

In the U.S. and in many other countries, banks are legally required to have a certain amount of cash on hand. Banks make some of their money by investing the money we give them to hold onto for us, so they’re incentivized to invest as much of it as they can. Yet, when we want to take cash out of our accounts, they'd better have some of it on hand, right? What if you and everyone-you-know’s mom wants to withdraw all of their money at the same time? Thus the mandated minimum reserve ratio for banks.

Working reserves are any reserves banks have on top of what’s already required. It’s their excess reserves they have on hand beyond what Uncle Sam pointing his finger said they have to have. Banks that have working reserves are being extra safe, having a larger buffer than required on hand. Extra credit to the banks who have working reserves.

See: Federal Reserve. See: Banking Reserves.