uppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Great Western Bank. Sketch out the balance sheet changes that will occur as Great Western restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Great Western Bank contains the following information (all in $ millions): Assets – reserves 30, bonds 50, and loans 250; Liabilities – deposits 300 and equity 30.

uppose the Fed conducts an open market sale by selling $10 million in Treasury bonds to Great Western Bank. Sketch out the balance sheet changes that will occur as Great Western restores its required reserves (10% of deposits) by reducing its loans. The initial balance sheet for Great Western Bank contains the following information (all in $ millions): Assets – reserves 30, bonds 50, and loans 250; Liabilities – deposits 300 and equity 30.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

Assets Answer: Liabilities Required Reserves: $460000 Loans $150000 Bonds: $840000 The above is the T-Accounts for TD bank. If the reserve ratio is 20 percent, what is the change in loans after the excess reserves are loaned out? Deposits: $1450000 Capital: 0
Assets Vault Cash Deposits at Fed Loans Total $50,000 $200,000 $600,000 $850,000 Liabilities and Net Worth First Southern's bank reserves are equal to $ checking deposits, First Southern' would maintain $ reserves over and above the desired amount. Deposits $850,000 Total The increase in the money supply will be $850,000 If First Southern bank wanted to maintain 0.10 of its assets as reserves against as reserves. Therefore, it would have $ as additional If First Southern uses the reserves above the desired level to extend additional loans, the money supply would increase by S If First Southern wanted to maintain 0.05 of its assets as reserves against checking deposits, First Southern' would maintain S as reserves, additional reserves would be $ and the increase in the money supply would be $ if First Southern chooses a desired reserve ratio of 0.05.
You are given the following balance sheet of the Summer Bank (21) Balance sheet of the Winter bank Assets Liabilities Cash $ 8,000 Deposited with the Fed $ 5,000 Loans $ 117,000 Deposits $ 80,000 Capital $ 50,000 Total $ 130,000 Total $ 130,000 The required reserve ratio (RRR) on all deposits is 5% d,What would be the excess reserves of this bank after the RRR is changed to 4%? e.How much new amount of loan will this bank be able to create with the RRR of 4%? f.How much new amount of loan the entire banking system be able to create because of the excess reserves? g.What happened to the money supply after the RRR was decreased to 4% from 5%?
The bank you own has the following balance sheet:       ASSETS |     LIABILITIES    Reserves 75M | Deposits 500M Loans 525M    | Bank Capital 100M If the bank suffers a deposit outflow of $50M with a required reserve ratio on deposits of 10%, show the resulting effects using T-accounts.   As a result, what actions must you take to keep your bank from failing (show T-accounts)?
Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy? Use the following balance sheet to answer questions 5-8 ($000) Cash               21                    Demand Deposits                  550 Securities       369                  Fed Funds (Borrowings)      151 Loans              400                  Equity                                       89
You are given the following balance sheet of the Summer Bank (21)                     Balance sheet of the Winter bank Assets Liabilities Cash $ 8,000 Deposited with the Fed $ 5,000 Loans $ 117,000 Deposits $ 80,000 Capital $ 50,000 Total $ 130,000 Total $ 130,000 The required reserve ratio (RRR) on all deposits is 5% What, if any, are this bank's excess reserves? How much new amount of loan will this bank be able to create because of the excess reserves? How much new amount of loan the entire banking system be able to create because of the excess reserves? What would be the excess reserves of this bank after the RRR is changed to 4%? How much new amount of loan will this bank be able to create with the RRR of 4%? How much new amount of loan the entire banking system be able to create because of the excess reserves? What happened to the money supply after the…
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 10%. Eric, a Southeast Mutual Bank customer, deposits $250,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 250,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Cho, who immediately uses the funds to write a check to Bob. Bob deposits the funds immediately into his checking…
Balance sheet of the Summer bank Assets Liabilities Cash $ 8,000 Deposited with the Fed $ 6,000 Loans $ 116,000 Deposits $ 80,000 Capital $ 50,000 Total $ 130,000 Total $ 130,000 The required reserve ratio (RRR) on all deposits is 8% a. What, if any, are this bank's excess reserves?
The First National Bank has $100million in chequable deposits. The desired reserve ratio is 6%. (i) Calculate the Bank's reserves. Round your answer to two decimal places. (ii) The Bank desires to invest $30million in Treasury bills. The Treasury bills are currently trading at $4986.7 (including brokerage fee). How many Treasury bills does the Bank purchase? Round your answer to the nearest whole number. (iii) The Bank makes commercial loans of $25millions and lends $39.3million in mortgages. Calculate the amount of bank capital. (iv) Complete the balance sheet of the Bank. (v) Assume that there is a shortfall of reserves because depositors withdraw $5million from the Bank. Show the new balance sheet of the Bank. What can the Bank do to eliminate the shortfall of reserves?
Assets Liabilities Required Reserves: $360000 Deposits: $1250000 Loans $150000 Capital: 0 Bonds: $740000 The above is the T-Accounts for TD bank. If the reserve ratio is 20 percent, what is the change in loans after the excess reserves are loaned out? Answer:
Use the information given in Great Lakes National Bank's balance sheet to answer the following questions. Assets Reserves Loans Securities Bank's Balance Sheet $175 $700 $875 Liabilities and Owners' Equity Deposits $1,400 Debt Capital (owners' equity) $225 $125 Suppose the owners of the bank contribute an additional $200 from their own funds and use it to buy securities in the name of the bank. This would increase the securities account and the account. This would also bring the leverage ratio from its initial value of to a new value of Which of the following statements regarding the capital requirement is true? Check all that apply. Its intended goal is to protect the interests of those who hold equity in the bank. It specifies a minimum leverage ratio for all banks. Its intended goal is to protect the interests of the depositors.
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Nick, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited (Dollars) 1,800,000 Change in Excess Reserves (Dollars) Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Latasha, who immediately uses the funds to write a check to Jake. Jake deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of…