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(3.) Consider the following bank balance sheet: Assets (in millions) Liabilities (in millions) Reserves $50 Demand...

(3.) Consider the following bank balance sheet:

Assets (in millions) Liabilities (in millions)
Reserves $50 Demand Deposits $200
Securities $50 Equity (in millions)
Loans $150 Equity Capital $50



(a.) Suppose that this bank is subject to a 10.00% required reserve ratio. Is this bank holding any excess reserves? If so, how much?
(b.) Suppose that this bank experiences a $35 million deposit out?ow. By how much is this bank short of its reserve requirements?

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Answer #1

a) Reserve ratio is a percentage of deposits.

Required reserves = 10% x $200 million = $20 million

??Excess reserves = $50 million - $20 million = $30 million

b) If the $35 million deposits are out, the new deposits on the liabilities side will be $165 million (200 - 35) and reserves will also be reduced by $35 million and come down to $15 million.

New reserve requirement = 10% x $165 million = $16.5 million

Shortage of reserve = $16.5 million - $15 million = $1.5 million

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