Excess reserves A. are reserves banks keep to meet the reserve requirement. B. are reserves banks keep above the legal requirement. C. are the deposits that banks do not use to make loans. D. are loans made at above market interest rates.

Answer: Excess reserves are reserves that banks keep above the legal requirements.

Explanation:

Excess reserves also called secondary reserve are the capital reserves that are held by a financial institution or a bank which is more than what is required by creditors, regulators or internal controls.

For commercial banks, the excess reserves are measured in relation to the legal reserve requirement amounts that is set by the central bank. These legal reserve requirement is the minimum amount set by the central bank in a country and anything above that is known as excess reserve.

Excess reserves are sometimes for precautions e. g when there is a sudden loss of loan or continuous cash withdrawals by the customers of a bank. Excess reserves are useful during uncertainty in the economy and can improve a bank's credit rating.

The correct answer is letter "B": are reserves banks keep above the legal requirement.

Explanation:

Banks reserves refer to the minimum amount of money banks must have represented by a percentage of their total deposits. Banks with deposits between $16 and $122.3 million must have a minimum reserve of 3% and banks above $122.3 million must have a minimum of 10%.

Excess reserves refer to the number of money banks have above the minimum reserve required. As banks do not earn interest over this amount usually they do not tend to have too much excess reserves.