Total required balances in recent years have been around $ billion, divided roughly equally between required reserves and contractual clearing balances.6 Banks may also choose to hold balances at the Fed in excess of their required balances. These so-called excess balances are costly for banks because they earn no interest and do not satisfy legal reserve requirements.
Nevertheless, a bank may hold them to facilitate financial transactions with other institutions.7 Whenever a bank makes or receives large payments electronically over Fedwire, either as a result of its own activities or those of its depositors, reserves are shifted out of the account of the paying bank into the reserve account of the receiving bank.