What are the banks excess reserves


Case Scenario: The balance sheet of a bank follows. Suppose that the reserve requirement is 3% on the first $30 million of checkable deposits and 10% on checkable deposits in excess of $30 million. (the amounts on the balance sheet are in millions of dollars):

Balance Sheet

Assets-----------------------------Liabilities+Capital
Reserves $15.9------------------Transactions deposits $180.0
Loans $150.0--------------------Equity capital $20.0
Securities $34.1-----------------Total $200.0
Total $200.0

Q1. Calculate the banks excess reserves.

Q2. Suppose that the bank sells $5 million in securities to get new cash. Show the bank's balance sheet after this transaction. What are the bank's excess reserves?

Q3. Suppose that the bank makes a loan to a customer equal to the amount of its excess reserves from part b. show the bank's balance sheet before the customer spends the proceeds of the loan. what are the bank's excess reserves?

Q4. Now suppose that the customer spends the proceeds of the loa. Show the bank's balance sheet, and calculate its excess reserves.

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Finance Basics: What are the banks excess reserves
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