Tyler Savings Banks has the following balance sheet. Assets Liabilities Reserves 80 Deposits 400 Loans 420...

Tyler Savings Banks has the following balance sheet.

Assets		Liabilities
Reserves	80	Deposits	400
Loans	420	Capital	100
Total	500	Total	500

If the bank suffers a deposit outflow of $50 with a required reserve ratio on deposits of 10%, what action can be taken? Show, using a revised balance sheet. Explain

Assets			Liabilities

Expert Solution

Solution:-

Calculate the amount of required reserve as follows:-

Required Reserves = Deposit * required reserve ratio

= 400 * 0.10

= 40 million

Therefore, the bank must hold $40 million in required reserve by federal regulation. It currently has $80 million in reserve so this requirement is met.

Assets	Amounts	Labilities	Amounts
Reserves	30	Deposit	350
Loans	420	Bank Capital	100
Total	450		450

Reserve Requirement is (350 * 0.10) = 35

Then to cover this shortage in reserve bank must increase the bank capital by 5. (30 – 35)

Rahul Sunny answered 3 years ago

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