Suppose that National Bank of Guerneville has $35 million in checkable deposits,
ID: 2779741 • Letter: S
Question
Suppose that National Bank of Guerneville has $35 million in checkable deposits, Commonwealth Bank has $43 million in checkable deposits, and the required reserve ratio for checkable deposits is 10%. If National Bank of Guerneville has $4 million in reserves and Commonwealth has $5 million in reserves, how much in excess reserves does each bank have?
National Bank of Guerneville has:
$0.5 million in excess reserves.
Commonwealth Bank has:
$0.7 million in excess reserves.
1.) Now suppose that a customer of National Bank of Guerneville writes a check for $2 million to a real estate broker who deposits the check at Commonwealth. After the check clears, how much in excess reserves does each bank have?
National Bank of Guerneville has
$1.3 million in excess reserves.
Commonwealth Bank has?
Please show how to get -1.3 and solve for Commonwealth Bank.
Explanation / Answer
National Bank of Guerneville Commonwealth Bank
Intial Chekable Deposits $ 35 million $ 43 million
Required Reserve @ 10% $ 3.5 million $ 4.3 million
Actual Reserves $ 4 million $ 5 million
Excess Reserves $ 0.5 million $ 0.7 million
A customer of National Bank of Guerneville writes a check for $2 million to a real estate broker who deposits the check at Commonwealth.
National Bank of Guerneville Commonwealth Bank
Revised Chekable Deposits $ 35-2 = 33 million $ 45 million
Required Reserve @ 10% $ 3.3 million $ 4.5 million
Revised Reserves $ 2 million $ 7 million
Excess Reserves $ (2-3.3) = -1.3 million $ (7-4.5) = 2.5 million