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BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve...

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

Expert Solution

ekkarill92 answered 2 years ago

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