Suppose that the reserve requirement is 10% on all depostis and the balance sheet of People’s National Bank looks like the following (in billions):
Assets Liabilities
Vault Cash $534 Checking Deposits $545
Reserves at the Fed $545 Saving & Time Deposits $7245
Loans Outstanding $6571 Borrowings $2200
U.S Government Securities $1100 Other Liabilities $785
Other Securities $1402 Net Worth ???
Other Assets $2113
a. What is the dollar value of required reserves for People’s National Bank? Does the bank have any excess reserves?
b. What is the “Net Worth” of the bank?
c. What is the maximum amount of new loans the bank can extend?
d. Indicate how the bank’s balance sheet would be altered if it made these new loans.
e. Suppose that the required reserves were 20 percent. If this were the case, would the bank be in a position to extend any additional loans? Will it satisfy the reserve requirement? What will it likely do?
Assets Liabilities
Vault Cash $534 Checking Deposits $545
Reserves at the Fed $545 Saving & Time Deposits $7245
Loans Outstanding $6571 Borrowings $2200
U.S Government Securities $1100 Other Liabilities $785
Other Securities $1402 Net Worth ???
Other Assets $2113
a. What is the dollar value of required reserves for People’s National Bank? Does the bank have any excess reserves?
b. What is the “Net Worth” of the bank?
c. What is the maximum amount of new loans the bank can extend?
d. Indicate how the bank’s balance sheet would be altered if it made these new loans.
e. Suppose that the required reserves were 20 percent. If this were the case, would the bank be in a position to extend any additional loans? Will it satisfy the reserve requirement? What will it likely do?