Explain how banks are financial intermediaries. What are reserves? What are excess reserves? Explain how the Fed can affect the quantity of excess...

Banks are
financial intermediaries because they gather money from depositors and lend it out to
borrowers.  In doing so, they act as intermediaries between these two groups.  If I lend you
money personally, there is no intermediary.  However, if you go to the bank and take out a loan,
the bank is acting as an intermediary between you as the borrower and me (and all the other
people who deposit money in the bank), whose money you are borrowing.

Banks
do not lend out all of the money that they take in.  Instead, they keep some of the money in
their possession.  The money that they keep and do not lend out is called their reserves.  The
Federal Reserve tells the banks how much money (what percent of their deposits) they have to
keep in reserve.  That money is called the banks required reserves.  If the banks keep more
money than required, the extra money is called their excess reserves.  The Federal Reserve
cannot really tell banks how much they should keep in excess reserves.  If the Fed lowers the
reserve requirement, banks might keep more money in excess reserves, but they do not have to. 
If the Fed raises the reserve requirement, banks might keep less money in excess reserves but,
again, they do not have to do so.

href="https://www.federalreserve.gov/monetarypolicy/reservereq.htm">https://www.federalreserve.gov/monetarypolicy/reservereq.htm