City Bank has estimated that its average daily net transaction accounts deposit
ID: 2573315 • Letter: C
Question
City Bank has estimated that its average daily net transaction accounts deposit balance over the recent 14-day reserve computation period was $225 million. The average daily balance with the Fed over the 14-day maintenance period was $9 million, and the average daily balance of vault cash over the two-week computation period was $7.5 million.
a. Under the rules effective in 2015, what is the amount of average daily reserves required to be held during the reserve maintenance period for these net transaction accounts balances?
b. What is the average daily balance of reserves held by the bank over the maintenance period? By what amount were the average reserves held higher or lower than the required reserves?
c. If the bank had transferred $20 million of its deposits every Friday over the two-week computation period to one of its offshore facilities, what would be the revised average daily reserve requirement?
Explanation / Answer
a.
Reserve requirements = (0 x $10.3m) + ($44.4m - $10.3m)(0.03) + ($225m - $44.4m) (0.10)
= 0 + $1.023m + $18.06m = $19.083 million
After subtracting the average daily balance of vault cash of $7.5 million, the bank needs to
maintain a daily average of $11.583 million ($19.083 million - $7.5 million) during the
maintenance period.
b.
The average daily balance over the maintenance period was $9 million. Therefore,
average reserves held were short $2.583 million.
c.
For the 14-day period, the sum of its daily average is = $225m x 14 = $3,150m. If $20
million is transferred on Friday, the total reduction is $120 million over two weekends
($20m x 3 days x 2 weekends), and the total 14-day balance is $3,030m. The average daily
deposits will be $216.4286 million.
Reserve requirements = (0 x $10.3m) + ($44.4m - $10.3m)(0.03) + ($216.4286m - $44.4m) (0.10) =
0 + $1.023m + $17.2029m = $18.2259 million. City Bank needs to maintain average reserves of
$10.7259 million ($18.2259 million - $7.5 million) during the maintenance period. Since it had $9
million of reserves, short reserves of $1.7259 per day can be carried forward to the next reserve
maintenance period