The following balance sheet is for the First National Bank. Assume the reserve ratio is 15 percent. Refer to the above data. This bank can make new loans of up to:

Question

The following balance sheet is for the First National Bank. Assume the reserve ratio is 15 percent.  Refer to the above data. This bank can make new loans of up to:

Quizplus · Accepted Answer

To calculate the maximum new loans the bank can make, we must first calculate the excess reserves:
Excess reserves = Total reserves - Required reserves
= $30,000 - ($60,000 x 0.15)
= $21,000
The maximum new loans the bank can make is equal to the excess reserves divided by the reserve ratio:
Maximum new loans = Excess reserves / Reserve ratio
= $21,000 / 0.15
= $140,000
Therefore, the bank can make new loans of up to $32,000 (the nearest answer choice) without falling below the required reserve ratio of 15 percent.

The Following Balance Sheet Is for the First National Bank