If a bank has $200,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $80,000 in reserves, then what is the maximum deposit outflow it can sustain without altering its balance sheet?

If possible, can you show how to solve this problem step by step?

The maximum deposit outflow it can sustain without altering its balance sheet is $120,000.

Explanation:

Total Check-able Deposit is $200,000 and the required reserve ratio is 20% which is $40,000.

Required Reserve amount = $200,000 x 20% = $40,000

Reserve amount = $80,000

This bank has excess of $40,000 reserves from required reserve ratio.

Excess Reserve = $80,000 - $40,000 = $40,000

As we know the bank has been reporting their reserves on the Balance sheet so the amount that will be reported on the balance sheet is $80,000. So the limit to sustain without altering its balance sheet is $80,000. Deposits below this amount will result to alter the balance sheet.

Maximum Deposit outflow = Current Deposit - current reserve amount

Maximum Deposit outflow = $200,000 - $80,000

Maximum Deposit outflow = $120,000