Question

When a bank faces a "reserve shortfall" a. it is failing to meet the minimum required...

When a bank faces a "reserve shortfall"

a.

it is failing to meet the minimum required reserves mandated by the Federal Reserve and must temporarily halt all operations.
b.

it is failing to meet the minimum required reserves mandated by Congress and must temporarily halt all operations.
c.

it is failing to meet the minimum required reserves mandated by the Federal Reserve and must quickly alter its portfolio of assets to secure these reserves.
d.

it is failing to meet the minimum required reserves mandated by Congress and must quickly alter its portfolio of assets to secure these reserves.
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Answer #1

The right answer is option c i.e. it is failing to meet the minimum required reserves mandated by the Federal Reserve and must quickly alter its portfolio of assets to secure these reserves. As we know, the reserve ratio is set by the Federal Reserve and each bank needs to maintain that ratio in order to meet the liquidity demand which may arise from the account holders side. If the bank fails to meet the reserve then the bank should alter its portfolio of assets and maintain the reserve ratio.   

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