Local Bank currently has $300 million in transaction deposits on its balance she

Question

Local Bank currently has $300 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 60 percent of these funds to National Bank as transaction deposits. What will be: The new amount of transaction deposits? The new amount of reserve deposits at the fed? The new amount of loans? Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 80 percent of its excess reserves to loans and borrowers return 70 percent of these funds to National Bank as transaction deposits. The new amount of transaction deposits? The new amount of reserve deposits at the fed? The new amount of loans ?

Explanation / Answer

PART 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 60 percent of these funds to National Bank as transaction deposits. What will be: The new amount of transaction deposits? The new amount of reserve deposits at the fed? The new amount of loans?

PART B: Show the balance sheet of the Federal Reserve and National Bank if National Bank converts 80 percent of its excess reserves to loans and borrowers return 70 percent of these funds to National Bank as transaction deposits. The new amount of transaction deposits? The new amount of reserve deposits at the fed? The new amount of loans ?

PANEL A : INITIAL BALANCE SHEET (IN MILLIONS) FEDERAL RESERVE Assets : securities 36.00 Liabilities: Reserve Accounts 36.00 NATIONAL BANK Assets: Loans 264.00                Reserve Deposists at Federal reserve 36.00 Liabilities: Transaction Deposits 300.00 PANEL B: AFTER ALL CHANGES FEDERAL RESERVE Assets : securities 33.60 Liabilities: Reserve Accounts 33.60 NATIONAL BANK Assets: Loans 302.40                Reserve Deposists at Federal reserve(336*0.10) 33.60 Liabilities: Transaction Deposits 336.00 [ $ 300 + { 300*(0.12-0.10) * 0.6/0.10]

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.