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Bank Balance Sheet

Suppose that a bank faces a balance sheet illustrated below, and the required reserve ratio is 20%.

ASSETS LIABILITIES
Reserves $50,000 Deposits $100,000
Loans $50,000
Total $100,000 Total $100,000

A. How much more could this bank loan out without acquiring additional funds?

B. Starting with the balance sheet above, suppose that a large depositor withdraws $50,000. With what action might the bank respond to this withdrawal, assuming other depositors are not available.

C. Draw a new balance sheet reflecting the end result after the changes explained in part B.

Solution Preview

A. How much more could this bank loan out without acquiring additional funds?

As the required reserve ratio is 20% and that the Reserves in the balance sheet is $50,000, we can find the total amount of bank loan as follows:-

50,000/20% = $250,000

Since the bank has already loan out $50,000, then the bank can loan an additional of ...

Solution Summary

This solution is comprised of a detailed explanation to find how much bank can loan out without acquiring additional funds.

$2.19