Question

The following net transaction accounts have been documented by a bank for the computation of its reserve requirements (in millions).

	Tuesday 11th			Wednesday 12th			Thursday 13th			Friday 14th			Monday 17th			Tuesday 18th			Wednesday 19th			Thursday 20th			Friday 21th			Monday 24th
Net transaction accounts	$	370		$	320		$	350		$	330		$	350		$	370		$	340		$	330		$	320		$	310

The average daily reserves at the Fed for the 14-day reserve maintenance period have been $30.3 million per day, and the average vault cash for the computation period has been estimated to be $3 million per day.

a. What is the amount of the average daily required reserves to be held by the bank during the maintenance period?
b. Is the bank in compliance with the requirements?

Answer 1

a). Average net transaction accounts over the 14-day period = (370+320+350+330+330+330+350+370+340+330+320+320+320+310)/14 = 335

Note: The reserves on Friday are carried over on Saturday and Sunday.

Reserves requirement = sum of [daily average net transaction accounts*reserve percentage]

= sum of [ (range of daily average net transaction accounts)*reserve percentage]

Daily average net transaction accounts	Range	Required reserve %age	Daily average reserves required
8.5	8.5	0%	0.000
45.8-8.5	37.3	3%	1.119
335-45.8	289.2	10%	28.920
			30.039

Minimum reserves requirement is $30.039

Daily average requirement = minimum reserves requirement - average vault cash = 30.039 - 3 = 27.039 million

The bank needs to maintain $27.039 million during the maintenance period.

b). Yes, the bank is in compliance because it needs to maintain $27.039 million average reserves whereas it has average reserves of $30.3 million at the Fed.