A bank currently has $50 million in deposits, $6 million in cash in the vault, $4 million on deposit with the Fed, and $5 million in government securities. The reserve ratio is 20 percent. A new deposit is made of $1 million. What is the maximum size loan the bank can make once the check clears?

Question

Quizplus · Accepted Answer

The bank must keep 20% of the new deposit ($1 million) as reserves, which is $200,000. Therefore, it can loan out the remaining 80%, which is $800,000.

A Bank Currently Has $50 Million in Deposits, $6 Million