Question

Use the balance sheet of the C-Bank to answer the questions below. Assume

the required reserve ratio is 5%

Table 1: C-Bank’s T-Balance Sheet

Reserves $50,000 Deposits $200,000

Loans $120,000 Net Worth $20,000

Treasury Securities $50,000

a) What are the assets of C-Bank?

b) What are the liabilities of C-Bank?

c) What are the required reserves of C-Bank?

d) What is the maximum loan that C-Bank can extend?

e) How would you rewrite C-Bank’s T-Balance sheet, assuming that this loan made?

Answer 1

A.

Assets are:

Reserves = $50000

Loans = $120000

Treasury securities = $50000

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B.

Liabilities are:

Deposits = $200000

Net Worth = $20000

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C.

Required reserve ratio = 5%

Required reserve = 200000*5%

Required reserve = $10000

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D.

Maximum amount of loan to be extended = 50000 - 10000

Maximum amount of loan to be extended = $40000

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E.

After extending loans in full, the T- balance sheet will be as follows.

Assets ($)		Liabilities ($)
Required Reserve =	10000	Deposits =	200000
Loans =	160000	Net Worth =	20000
Treasury Securities =	50000
Total =	220000	Total =	220000