Suppose that First Bank has $34 million in checkable deposits, Second Bank has $

Question

Suppose that First Bank has $34 million in checkable deposits, Second Bank has
$47 million in checkable deposits, and the reserve requirements for checkable deposit is 10%.
First Bank currently has $4 million in reserves and Second Bank has $5 million in reserves,
how much excess reserves does each bank have? Now suppose that a customer of First Bank
writes a check for $1 million to a real estate broker who deposits it at Second Bank. After
the check clears, how much excess reserves does each bank have?

Explanation / Answer

FB therefore needs 3.4m in reserves, so they have 0.6m excess SB therefore needs 4.7m in reserves, so they have 0.3m excess FB has 0.7m excess SB has 0.2m excess

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