Question

NewBank started its first day of operations with ?$102 million in capital. A total of ?$106 million in checkable deposits is received. The bank makes a ?$26 million commercial loan and another ?$28 million in mortgage loans. The required reserve ratio is 8.9?%. ?(?Note: Information is based on? NewBank's first month of? operations.) Complete? NewBank's balance sheet shown? below: ?(Round your responses to the nearest whole? number.)

Assets

Required reserves ?$ ? million

Excess reserves ?$ ? million

Loans ?$ ? million

Liabilities

Checkable deposits ?? million

Bank capital ?$ ?million

Answer 1

Working notes:

(i) Total liabilities ($Million) = Checkable deposits + Bank capital = 106 + 102 = 208

(ii) Total assets = Total liabilities = Total reserves + Commercial Loan + Mortgage loan

$208 Million = Total reserves + $(26 + 28) Million

Total reserves ($ Million) = 208 - 54 = 154

(iii) Required reserves ($Million) = Checkable deposits x Required reserves ratio = 106 x 8.9% = 9

(iv) Excess reserves ($Million) = Total reserves - Required reserves = 154 - 9 = 145

Therefore, Balance sheet as follows.

Assets	$Million	Liabilities & Capital	$Million
Required reseves	9	Checkable deposits	106
Excess reserves	145	Bank capital	102
Loans	54
TOTAL ASSETS	208	TOTAL LIABILITIES & CAPITAL	208