Question

Table 1 shows the financial position of Bank Uno once $2367.00 has been deposited.

Assume that the required reserve ratio is 5.00%, that banks do not keep excess reserves, and that all the money loaned out from Bank Uno is deposited into Bank Duo (whose loans go to other banks not shown here).

Once the lending and depositing process is complete, what will the accounts look like in Tables 2 and 3? Specify all answers to two decimal places.

Table 1. Bank Uno's Initial T-Account

Assets	Liabilities
Reserves: $2367.00	Deposits: $2367.00

Table 2. Bank Uno's T-Account After Loans

Assets	Liabilities
Reserves: ?	Deposits: ?
Loans: ?

Table 3. Bank Duo's T-Account After Deposits and Loans

Assets	Liabilities
Reserves: ?	Deposits: ?
Loans: ?

What are Bank Uno's deposits in Table 2?

$

What are Bank Uno's reserves in Table 2?

$

What are Bank Duo's loans in Table 3?

$

What are Bank Uno's loans in Table 2?

$

Answer 1

Required reserves are a certain percentage of the deposits of the bank which it is required to keep with itself in the form of reserves. These reserves cannot be used to make loans. It is calculated as-

Required reserves= deposits x required reserve ratio

Excess reserves are the reserves which are over and above the required reserves. These reserves are used by the bank to make loans and advances.

When $2367.00 will be deposited in Bank Uno, the bank will keep 5% of this deposit as required reserves and will loan out the excess reserves.

So, required reserves for Bank Uno-

Required reserves= deposits x required reserve ratio

Required reserves= $2367.00 x 5%

Required reserves= $2367.00 x 5/100

Required reserves= $2367.00 x 0.05

Required reserves= $118.35

Excess reserves= Actual reserves - required reserves

From the given table 1 of Bank Uno we can see that reserves of the bank are over and above the required reserves. Hence, these reserves can be used to make loans.

Excess reserves= $2367.00 - $118.35

Excess reserves=$2248.65

Hence, Bank Uno will keep required reserves of $118.35 and will loan out the excess reserves of $2248.65. Hence, Table 2 will look like-

Table 2. Bank Uno's t- account after loan

Assets	Liabilities
Reserves $118.35 Loans $2248.65	Deposits $2367.00

As all the money loaned out from Bank Uno is deposited into Bank Duo, Bank Duo will receive a deposit of $2248.65. Hence, the bank will keep 5% of this deposit as required reserves and will loan out the excess reserves.

Required reserves of Bank Duo-

Required reserves= deposits x required reserve ratio

Required reserves= $2248.65 x 5%

Required reserves= $2248.65 x 5/100

Required reserves= $2248.65 x 0.05

Required reserves= $112.43( after rounding off to two decimal places)

Out of deposit received of $2248.65, the bank will keep $112.43 as required reserves and will loan out the excess reserves.

Excess reserves= deposits - required reserves

Excess reserves= $2248.65 - $112.43

Excess reserves= $2136.22

Hence, Back Duo will keep $112.43 as required reserves and will loan out the excess reserves of $2136.22

Table 3. Bank Duo's t- account after deposits and loans

Assets	Liabilities
Reserves $112.43 Loans $2136.22	Deposits $2248.65

Bank Uno's deposits in table 2 are $2367.00

Bank Uno's reserves in table 2 are $118.35

Bank Duo's loans in table 3 are $2136.22

Bank Uno's loans in table 2 are $2248.65