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BSW Bank currently has $100 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent

BSW Bank currently has $100 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits.

a.

If the Federal Reserve decreases the reserve requirement to 4 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to BSW in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsReserve deposits at FedLoans $ million (Click to select)Reserve deposits at FedLoansTransaction depositsReserve accountsSecurities $ million

BSW Bank
Assets Liabilities
(Click to select)Reserve accountsLoansTransaction depositsSecuritiesReserve deposits at Fed $ million (Click to select)SecuritiesReserve deposits at FedLoansTransaction depositsReserve accounts $ million
(Click to select)Reserve accountsReserve deposits at FedLoansTransaction depositsSecurities million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
(Click to select)Transaction depositsLoansSecuritiesReserve deposits at FedReserve accounts $ million (Click to select)Transaction depositsReserve accountsLoansReserve deposits at FedSecurities $ million

BSW Bank
Assets Liabilities
(Click to select)Transaction depositsReserve deposits at FedLoansSecuritiesReserve accounts $ million (Click to select)Reserve accountsReserve deposits at FedSecuritiesTransaction depositsLoans $ million
(Click to select)SecuritiesReserve deposits at FedReserve accountsLoansTransaction deposits million

b.

Redo part (a) using a 8 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets Liabilities
(Click to select)LoansReserve deposits at FedSecuritiesReserve accountsTransaction deposits $ million (Click to select)LoansTransaction depositsReserve deposits at FedSecuritiesReserve accounts $ million

BSW Bank
Assets Liabilities
(Click to select)LoansReserve accountsSecuritiesReserve deposits at FedTransaction deposits $ million (Click to select)Reserve deposits at FedSecuritiesLoansReserve accountsTransaction deposits $ million
(Click to select)LoansReserve deposits at FedReserve accountsSecuritiesTransaction deposits million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
(Click to select)SecuritiesReserve deposits at FedReserve accountsLoansTransaction deposits $ million (Click to select)Reserve accountsReserve deposits at FedLoansSecuritiesTransaction deposits $ million

BSW Bank
Assets Liabilities
(Click to select)Transaction depositsLoansReserve accountsReserve deposits at FedSecurities $ million (Click to select)SecuritiesReserve accountsLoansReserve deposits at FedTransaction deposits $ million
(Click to select)Reserve accountsLoansTransaction depositsReserve deposits at FedSecurities million

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