The following information is given about the Bank. The deposits for the bank are $1,000,000. The...
The following information is given about the Bank. The deposits for the bank are $1,000,000. The bank has reserves of $350,000. The reserve ratio is 10%
Provide a T account for the bank that shows the deposits, reserves, and loans for the bank.
What is the amount of the required reserve?
Does the bank have any excess reserves? If yes, how much?
What is the maximum amount of money the bank can loan?
If the reserve ratio changed to 12.5% would anything change?
Homework Answers
ASSETS LIABILITIES
Loans $650000 Deposits $1000000
Reserves $350000
Total $1000000 Total $1000000
If the required reserve ratio is 10%,
The total reserves required would be =
= 0.1 * 1000000
= $100000
So, we can see that the reserve amount is higher than the required reserve.
The amount of excess reserve is =
= $350000 - $100000
= $250000.
So, the maximum amount of loan that can be given = Deposits - Required reserves
= $1000000 - $100000
= $900000.
If the required reserve ratio changes to 12.5%, the required reserves would increase to
0.125*$1000000
= $125000
And the maximum amount loan that can be given decreases to
$1000000 - $125000
= $875000
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