Question

BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits.

a.

If the Federal Reserve decreases the reserve requirement to 5 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to BSW in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
_____ (options) Reserve deposits at Fed   Transaction deposits   Securities   Reserve accounts   Loans	$ __ million	______ (options) Securities   Transaction deposits   Reserve accounts   Loans   Reserve deposits at Fed	$    million

BSW Bank
Assets		Liabilities
______ (options) Reserve deposits at Fed   Reserve accounts   Securities   Loans   Transaction deposits	$ __ million	______ (options) Reserve deposits at Fed   Loans   Securities   Reserve accounts   Transaction deposits	$    million
_____ (options) Reserve accounts   Securities   Transaction deposits   Loans   Reserve deposits at Fed	___ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
_____ (options)Reserve deposits at Fed   Reserve accounts   Loans   Transaction deposits   Securities	$ __ million	_____ (options) Loans   Reserve accounts   Securities   Reserve deposits at Fed   Transaction deposits	$    million

BSW Bank
Assets		Liabilities
_____ (options) Securities   Transaction deposits   Loans   Reserve accounts   Reserve deposits at Fed	$ __ million	_____ (options) Loans   Reserve deposits at Fed   Securities   Transaction deposits   Reserve accounts	$    million
_____ (options) Reserve accounts   Loans   Securities   Reserve deposits at Fed   Transaction deposits	___million

b.	Redo part (a) using a 8 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
______ Reserve deposits at Fed   Transaction deposits   Reserve accounts   Loans   Securities	$ __ million	______ Securities   Reserve accounts   Loans   Reserve deposits at Fed   Transaction deposits	$    million

BSW Bank
Assets		Liabilities
________ Reserve accounts   Securities   Reserve deposits at Fed   Loans   Transaction deposits	$ __ million	_________ Reserve accounts   Transaction deposits   Reserve deposits at Fed   Securities   Loans	$    million
_______ Reserve accounts   Transaction deposits   Loans   Securities   Reserve deposits at Fed	__million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
_____ Securities   Loans   Reserve accounts   Transaction deposits   Reserve deposits at Fed	$ __ million	_____ Securities   Transaction deposits   Loans   Reserve accounts   Reserve deposits at Fed	$    million

BSW Bank
Assets		Liabilities
______ Reserve accounts   Transaction deposits   Reserve deposits at Fed   Loans   Securities	$ __ million	_______ Reserve accounts   Reserve deposits at Fed   Transaction deposits   Securities   Loans	$    million
______ Transaction deposits   Reserve accounts   Loans   Reserve deposits at Fed   Securities	__ million

Answer 1