Assume that there are two banks, Bank Lebron $($L$)$ and Bank Mireles $($M$),$

in the banking system. Bank L receives a primary deposit of $$400,000,$ and it must keep a required reserve of $8\%$ against deposits as set by the regulator. Bank L makes a loan in the amount that can be safely lent.

a$.$ Show what Bank L$$s balance sheet of assets and liabilities would look like

immediately after the loan.

b$.$ Assume that a check is drawn against the derivative deposit made in Bank L $($as

described in problem a above$)$ and is deposited in Bank M$.$ Show what the

balance sheet of assets and liabilities would look like for each of the two banks

$($i$.$e$.$ both Bank L and Bank M$)$ after the transaction has taken place.

c$.$ Now assume that Bank M makes a loan in the amount that can be safely lent

against the funds deposited in its bank from the transaction described in $($b$).$ Show what Bank M$$s balance sheet of assets and liabilities would look like after

the loan.