Calculate excess reserves, required reserves, or total legal reserves by entering any two values and finding the missing amount quickly.
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Excess Reserves Formula
The excess reserves calculation compares a bank’s legal reserves, also called total reserves, with the reserves it is required to hold.
- ER = excess reserves
- LR = legal reserves, or total reserves
- RR = required reserves
The calculator can also solve for the other two variables when you enter any two values:
- To calculate excess reserves: enter legal reserves and required reserves. The calculator subtracts required reserves from legal reserves.
- To calculate legal reserves: enter required reserves and excess reserves. The calculator adds them together.
- To calculate required reserves: enter legal reserves and excess reserves. The calculator subtracts excess reserves from legal reserves.
Reserve Result Interpretation
Use this table to understand what the excess reserve result means.
| Result | Meaning | Basic Interpretation |
|---|---|---|
| ER > 0 | Legal reserves are greater than required reserves. | The bank has excess reserves. |
| ER = 0 | Legal reserves equal required reserves. | The bank is holding exactly the required amount. |
| ER < 0 | Legal reserves are less than required reserves. | This represents a reserve shortage, not excess reserves. |
Reserve Components
| Term | What It Represents | Used In This Calculator As |
|---|---|---|
| Legal reserves | The bank’s total reserves available for meeting reserve rules. | Total reserves, or LR |
| Required reserves | The minimum reserves the bank must hold. | RR |
| Excess reserves | Reserves held above the required amount. | ER |
Example
Example 1: Calculate excess reserves
A bank has $500,000 in legal reserves and $420,000 in required reserves.
The bank has $80,000 in excess reserves.
Example 2: Calculate legal reserves
A bank has $300,000 in required reserves and $25,000 in excess reserves.
The bank has $325,000 in legal reserves.
FAQ
What are excess reserves?
Excess reserves are the reserves a bank holds above its required reserves. If a bank is required to hold $100,000 but actually holds $125,000, the excess reserves are $25,000.
Can excess reserves be negative?
Mathematically, yes. If legal reserves are less than required reserves, the formula gives a negative result. In practice, that negative amount means the bank has a reserve shortage rather than excess reserves.
Are legal reserves the same as total reserves?
In this calculator, legal reserves are treated as total reserves. They represent the full amount of reserves being compared against required reserves to find the excess amount.
