First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds. Consider the information for First National Bank. If the reserve ratio is 20%, what are the excess reserves available for the bank to lend

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Business

Julianna Bradley

2 May, 08:30

First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds. Consider the information for First National Bank. If the reserve ratio is 20%, what are the excess reserves available for the bank to lend

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Jamie Boone · Answer 1

Answer: $64 million

Explanation:

Deposit = $80 million

Reserved Required Ration = 20% (0.20)

Firstly, we have to calculate Reserve Requirements before we can calculate the excess reserve.

Reserve Requirements = (Deposit x Reserve Requirements Ratio).

Reserve Requirements = ($80million x 0.2)

Reserve Requirements = $16million

Therefore,

Eccess Reserve = (Deposit - Reserve Requirements)

Eccess Reserve = ($80million - $16million)

Eccess Reserve = $64million

The amount of Excess Reserve which can be loaned out is $64million