Please with all the explanations and with a table/
Your bank has the following balance sheet:
Assets Liabilities
Reserves $ 50 million Checkable deposits $200 million
Securities 50 million
Loans 150 million Bank capital 50 million
If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?
Please with all the explanations and with a table/
Your bank has the following balance sheet:
Assets Liabilities
Reserves $ 50 million Checkable deposits $200 million
Securities 50 million
Loans 150 million Bank capital 50 million
If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of $50 million?
Related textbook solutions
Related questions
Suppose you were the manager of a bank with the following balance sheet (ignoring bank capital):
| Assets (in millions) | Liabilities (in millions) |
| Reserves $30 | Checkable Deposits $200 |
| Securities $150 | Time Deposits $600 |
| Loans $820 | Borrowings $100 |
You are required to hold 10 percent of checkable deposits as reserves. If you were faced with unexpected withdrawals of $50 million from time deposits, would you rather
a. Draw down $10 million excess reserves and borrow $40 million from the Fed?
b. Draw down $10 million excess reserves and sell securities of $40 million?
Option a would be preferred to Option b because it shrinks the size of the balance sheet by less. Banks would prefer not to reduce the size of their balance sheets as that lowers their profit.
Option b would be preferred to Option a because it shrinks the size of the balance sheet by less. Banks would prefer not to reduce the size of their balance sheets as that lowers their profit.
Option b would be preferred to Option a because borrowing from the Fed is never a good idea under any circumstance.
Both options are equally desirable as they are equally costly to the bank.
