Beleaguered State Bank (BSB) holds $400 million in deposits and maintains a reserve ratio of 10 percent. Complete the following T-account for BSB.
Assets Liabilities
Reserves million Deposits million
Loans million
Now suppose that BSB's largest depositor withdraws $20 million in cash from her account. BSB decides to restore its reserve ratio by reducing the amount of loans outstanding. Complete BSB's new T-account after it has taken this action.
Beleaguered State Bank
Assets Liabilities
Reservesmillion Deposits million
Loans million
Because BSB is cutting back on its loans, other banks will find they have reserves, causing them to their loans. BSB may find it difficult to cut back on its loans immediately because it cannot force people to pay off loans.
Which of the following ways represent an alternative for BSB to return to its original reserve ratio? Check all that apply.
a. Attract additional deposits
b. Borrow money from another bank
c. Lend money
d. Borrow money from the Fed
Answers: 1
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Beleaguered State Bank (BSB) holds $400 million in deposits and maintains a reserve ratio of 10 perc...
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