Question

describe four potential possible ways that a bank could do when its required reserve drops below the requirement.

Answer 1

Depository institutions which comprise the credit unions, savings institutions, and foreign banks, are expected through the economic policies to retain some specifies the amount of money as their deposit. On December 28, 2000, the procedure was enacted whereby depository institutions were expected to hold cash of 3% in $42.8 million in accounts involved in transactions while 10% accounted for accounts that had above $42.8 million (Beck, Paul & Ganapathi 53). However, in some instances, the amount specified declines to surprising amounts. The banks are expected to adopt approaches that alleviate the charges to expected percentages.

First, the banks may reserve ratio, reduce the money supply and raise the money multiplier to revive the percentages to expected levels.  Second, the banks hold more reserves than money deposited and lend out fewer loans; this ensures more funds are retained in the banks, hence maintaining the situation to the expected percentages of savings (Beck, Paul & Ganapathi 55). The banks may also increase loans to the lenders, which ensures the economy develops, resulting in more deposits. The banks may get involved in investments that may be lent out to potential customers to raise deposits when they get below-expected percentages.

 Work Cited

Beck, Paul J., and Ganapathi S. Narayanamoorthy. "Did the SEC impact banks' loan loss reserve policies and their informativeness?." Journal of Accounting and Economics 56.2-3 (2013): 42-65.

 

 

 

 

 

 

Depository institutions which comprise the credit unions, savings institutions, and foreign banks, are expected through the economic policies to retain some specifies the amount of money as their deposit.