Final answer:
In IFRS, 'reserves' refer to funds banks must hold, typically not generating interest, required by regulations, and not including fair value differences.
Step-by-step explanation:
The term reserves under IFRS refers to the funds that financial institutions are required to set aside and not lend out or invest. This concept of reserves is closely linked with regulatory requirements, such as the reserve requirement, which dictates the minimum amount a bank must hold in reserve against depositors' funds. Importantly, these reserves do not generate interest payments because they are not employed in earning activities like lending or investing in bonds. Banks typically maintain these reserves either in their own vaults or at a central bank such as the Federal Reserve. In addition to the mandatory reserves, banks may also hold excess reserves as an additional financial buffer.
However, fair value differences are not considered under the 'reserves' classification since they are related to the valuation of assets and liabilities, and adjustments due to changes in their fair value are accounted for separately in the financial statements.