5. The money creation process

Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Sean, a client of First Main Street Bank, deposits $750,000 into his checking account at First Main Street Bank.

Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).

Assets Liabilities

Building and furniture, $150,000 Building and furniture $150,000

Deposits, $600,000 Deposits $600,000

Loans, $750,000 Loans $750,000

Net-worth $1,800,000 Net-worth $1,800,000

Reserves Reserves

Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.

Hint: If the change is negative, be sure to enter the value as negative number.

Amount Deposited Change in Excess Reserves Change in Required Reserves {Buffers} 1" Dollars) {Dollars} Increase in Deposits Increase in Required Reserves Increase in Loans (Dollars) (Dollars) (Dollars) Second Republic Bank :l :| Third Fidelity Bank |:| |:|