BSW Bank currently has $1,000 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 5 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)LoansTransaction depositsReserve accountsReserve deposits at FedSecurities	$ million	(Click to select)Reserve deposits at FedLoansReserve accountsTransaction depositsSecurities	$ million

BSW Bank
Assets		Liabilities
(Click to select)LoansReserve deposits at FedSecuritiesReserve accountsTransaction deposits	$ million	(Click to select)LoansTransaction depositsReserve deposits at FedReserve accountsSecurities	$ million
(Click to select)Transaction depositsReserve accountsSecuritiesLoansReserve deposits at Fed	million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesLoansReserve deposits at FedReserve accountsTransaction deposits	$ million	(Click to select)LoansReserve accountsTransaction depositsSecuritiesReserve deposits at Fed	$ million

BSW Bank
Assets		Liabilities
(Click to select)SecuritiesLoansReserve deposits at FedTransaction depositsReserve accounts	$ million	(Click to select)Reserve deposits at FedTransaction depositsSecuritiesLoansReserve accounts	$ million
(Click to select)SecuritiesReserve accountsTransaction depositsLoansReserve deposits at Fed	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)Reserve deposits at FedSecuritiesLoansReserve accountsTransaction deposits	$ million	(Click to select)SecuritiesTransaction depositsReserve accountsLoansReserve deposits at Fed	$ million

BSW Bank
Assets		Liabilities
(Click to select)Reserve accountsTransaction depositsLoansReserve deposits at FedSecurities	$ million	(Click to select)SecuritiesLoansReserve deposits at FedTransaction depositsReserve accounts	$ million
(Click to select)Transaction depositsReserve deposits at FedSecuritiesReserve accountsLoans	million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Reserve accountsReserve deposits at FedTransaction depositsLoansSecurities	$ million	(Click to select)Reserve deposits at FedTransaction depositsReserve accountsLoansSecurities	$ million

BSW Bank
Assets		Liabilities
(Click to select)Reserve accountsTransaction depositsSecuritiesLoansReserve deposits at Fed	$ million	(Click to select)LoansSecuritiesReserve deposits at FedReserve accountsTransaction deposits	$ million
(Click to select)Reserve accountsReserve deposits at FedSecuritiesTransaction depositsLoans	million