In situations where the required reserve shortfall exceeds 4 percent, the bank may be
A)assessed explicit monetary penalties by the Federal Reserve Bank.
B)assessed implicit penalties in the form of more frequent monitoring and examinations.
C)allowed to carry 4 percent of the required reserves to the next maintenance period.
D)declared insolvent.
E)assessed explicit monetary penalties by the Federal Reserve Bank and implicit penalties in the form of more frequent monitoring and examinations and allowed to carry 4 percent of the required reserves to the next maintenance period.

Question

Quizplus · Accepted Answer

When a bank's required reserve shortfall exceeds 4 percent, the Federal Reserve Bank can impose both explicit monetary penalties and implicit penalties, such as more frequent monitoring and examinations. Additionally, the bank may be allowed to carry 4 percent of the required reserves to the next maintenance period, combining elements of options A, B, and C. This approach allows the Federal Reserve to enforce compliance while providing some flexibility to the bank in managing its reserves.

In Situations Where the Required Reserve Shortfall Exceeds 4 Percent