They are reserves of cash more than the required amounts.

Banks use excess reserves to make loans to customers so that they can make profits on the interest

Commercial banks cannot use excess reserves to make common loans. They can only use them to make loans to other banks who may need more required reserves. Excess reserves increase the monetary base but do not enter the M1 or M2 money supply. The only entity that can effect the total excess reserves is the Federal Reserve. When the fed decides to reduce its balance sheet, it will sell assets in the market and reduce an equal amount of excess reserves.

They dont loan out their excess reserves. They only have excess reserves because

they dont have loan demand from qualified borrowers and the marginal return from

an average loan is greater than the interest paid on the excess reserves. IE they have to receive a marginal return of X amount above .25% they now receive on their

excess reserves from a borrower SO

1. They have to loan demand

2. Qualified borrower

3. Net marginal return of higher than the amount of interest they receive on their reserves.

reserving bank