Explanation

When a bank invests its excess reserves, its primary return objective is to earn a return that exceeds the interest rate it pays on its deposits. Here's why:

1. Excess reserves are funds that banks hold beyond the required reserve ratio set by the central bank. These funds are not earning any return when held as reserves.

2. Cost of funds: The bank pays interest to depositors for the funds it holds. This represents the bank's cost of funds.

3. Investment objective: When investing excess reserves, the bank aims to earn a return that covers its cost of funds (deposit interest) plus a margin to generate profit.

4. Risk-free rate comparison: While the risk-free rate is a benchmark, banks need to earn more than just the risk-free rate to cover their specific funding costs.

5. Loan rate comparison: The interest rate on loans represents the bank's primary lending business, but when investing excess reserves, the bank is typically looking at short-term, low-risk investments rather than making new loans.

Key concept: Banks have a spread-based business model. They pay interest on deposits (liabilities) and earn interest on investments/loans (assets). The return on excess reserves must exceed the cost of those deposits to create positive net interest income.

Correct answer: B - interest rate the bank pays on its deposits.