Working Reserves

DEFINITION of 'Working Reserves'

Reserves held by banks above the required minimum level - or cash reserve ratio - mandated by regulations and laws. Working reserves are normally in the form of vault currency, deposits at other banks, cash being collected and excess reserves held as deposits at the Federal Reserve bank. Banks typically hold a buffer of working reserves to avoid their reserves falling below the minimum required level due to large net withdrawals.




BREAKING DOWN 'Working Reserves'

Banks hold an optimum level of working reserves since inadequate working reserves would lead to avoidable interest penalties on borrowed reserves. On the other hand, an excessively high level of working reserves would mean foregoing substantial interest income on customer loans.

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RELATED FAQS
  1. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
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    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
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