Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.If the required reserve ratio is 10 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Question

Quizplus · Accepted Answer

The required reserves are $300,000 (10% x $3,000,000). The bank has $1,000,000 in total reserves, so its excess reserves are $700,000 ($1,000,000 - $300,000). The bank could loan out $700,000 as a result.

Exhibit 25-2 a Bank's Assets Consist of $1,000,000 in Total