As of today, the First ECON Bank of Austin currently holds:
$200M in transaction deposits
$20M in Bank’s capital
$20M in Investment Securities
$160M in Loans
In addition to that, First ECON Bank also holds $40M in Total Bank Reserves.
The bank manager just noticed that one of the UT Austin students just withdrew $20M out of the checkable (transaction) deposits.
If we assume that that entire amount of the transaction deposits is a subject to the legal 10% reserve requirement, please indicate the required course of the bank’s action to manage its liquidity and meet its legal Reserves requirement:
Briefly explain how (if at all) would you answer change if the UTA students withdrew $40M?