Assets: Vault Cash: $20,000 Deposits at Fed $30,000 Securities $45,000 Loans $12

Question

Assets:
Vault Cash: $20,000
Deposits at Fed $30,000
Securities $45,000
Loans $120,000

Liabilities:
Checking Deposits $200,000
Net Worth $15,000

Suppose that the reserve requirement is 10 percent and the bank's balance sheet looks like the example above.

a.What are the required reserves? Does the bank have any excess reserves?
b. What is the maximum loan that the band could extend?
c.How would the bank's balance sheet would be altered if it extended this loan?
d. Suppose the required reserves were 20 percent. If this were the case. would the bank be in a position to extend any additional loans?

I know its a really long question but i've read all the notes i have and i still have no clue whatsoever as to how to solve it. If there's even one part you can help me with i would really appreciate it. Thanks in advance^^

Explanation / Answer

a) required reserves are compulsary reserves deposited at Fed . this will be compulsary for all banks. in above case reserve requirement is 10% . that is 10% of assets with bank has to be deposited . so here sum of vault cash , securities and loans is $185,000. 10% of this is $18,500. excess reserves is excess deposits with Fed other than required reserves. here deposits with Fed = $30,000 . as required reserve = $18,500 . so excess reserve = $30,000-$18,500 = $11,500. b) the maximum loan that the bank could extend = 90% of loans . as 10% should be deposited with Fed. so 90% of $120,000 = $108,000 c)if bank extend loan ,in balance sheet total assets will not be equal to total liabilities

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