Question

National Bank currently has $750 million in transaction deposits on its balance sheet. The current reserve requirement is 12 percent, but the Federal Reserve is decreasing this requirement to 10 percent.

    

a.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

    

Panel A: Initial balance sheets

     

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesLoansReserve deposits at FedReserve accounts	$ million	(Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities	$ million

     

National Bank
Assets		Liabilities
(Click to select)LoansReserve accountsSecuritiesReserve deposits at FedTransaction deposits	$ million	(Click to select)LoansReserve accountsSecuritiesTransaction depositsReserve deposits at Fed	$ million
(Click to select)Reserve accountsSecuritiesLoansTransaction depositsReserve deposits at Fed	$ million

     

Panel B: Balance sheet after all changes

     

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsSecuritiesReserve deposits at FedTransaction depositsLoans	$ million	(Click to select)Reserve accountsLoansSecuritiesReserve deposits at FedTransaction deposits	$ million

     

National Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsReserve deposits at FedLoans	$ million	(Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities	$ million
(Click to select)Reserve deposits at FedReserve accountsSecuritiesTransaction depositsLoans	$ million

     

b.

Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 70 percent of its excess reserves to loans and borrowers return 60 percent of these funds to National Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

     

Panel A: Initial balance sheets

     

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve deposits at FedSecuritiesReserve accountsTransaction depositsLoans	$ million	(Click to select)Reserve deposits at FedReserve accountsSecuritiesLoansTransaction deposits	$ million

    

National Bank
Assets		Liabilities
(Click to select)SecuritiesTransaction depositsReserve deposits at FedReserve accountsLoans	$ million	(Click to select)Reserve deposits at FedSecuritiesReserve accountsTransaction depositsLoans	$ million
(Click to select)LoansReserve deposits at FedReserve accountsSecuritiesTransaction deposits	$ million

     

Panel B: Balance sheet after all changes

    

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed	$ million	(Click to select)Reserve accountsSecuritiesReserve deposits at FedTransaction depositsLoans	$ million

    

National Bank
Assets		Liabilities
(Click to select)Transaction depositsReserve accountsSecuritiesLoansReserve deposits at Fed	$ million	(Click to select)Reserve deposits at FedReserve accountsSecuritiesTransaction depositsLoans	$ million
(Click to select)Transaction depositsReserve deposits at FedReserve accountsLoansSecurities	$ million

Answer 1