Suppose the bank you own has no excess reserves and a current, large, and valuab

Question

Suppose the bank you own has no excess reserves and a current, large, and valuable customer (one who has taken out many loans and always paid them back) approaches the bank asking for a loan. List two things the bank can do to provide the funds to loan the customer. Would a well-run bank ever be in such a position where it wanted to (because a customer wanted a loan) or had to (because of depositors withdrawing from their accounts) take the actions you suggested in (a) because of little, no, or negative excess reserves? Why or why not?

Explanation / Answer

1.Every new loan creates new money.

2.Reserves play an important role for lending.

3.Bank

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