Suppose you were the manager of a bank with the following balance sheet.

You are required to hold 10 percent of checkable deposits as reserves. If you were faced with unexpected withdrawals of $30 million from time deposits, would you rather

a. Draw down $10 million excess reserves and borrow $20 million from the Fed?

b. Draw down $10 million excess reserves and sell securities of $20 million?
Explain your choice.

Transcribed Image Text:

Bank Balance Sheet (in millions) Assets Liabilities Reserves $30 Checkable Deposits $200 Securities $150 Time Deposits $600 Loans $820 Borrowings $100