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BSW Bank currently has $550 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent

BSW Bank currently has $550 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)Reserve accountsReserve deposits at FedLoansSecuritiesTransaction deposits $ million (Click to select)LoansSecuritiesReserve deposits at FedReserve accountsTransaction deposits $ million

BSW Bank
Assets Liabilities
(Click to select)SecuritiesLoansReserve deposits at FedReserve accountsTransaction deposits $ million (Click to select)SecuritiesReserve deposits at FedTransaction depositsLoansReserve accounts $ million
(Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
(Click to select)Reserve deposits at FedTransaction depositsLoansReserve accountsSecurities $ million (Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities $ million

BSW Bank
Assets Liabilities
(Click to select)Transaction depositsReserve deposits at FedLoansSecuritiesReserve accounts $ million (Click to select)Transaction depositsSecuritiesLoansReserve accountsReserve deposits at Fed $ million
(Click to select)Reserve deposits at FedTransaction depositsLoansSecuritiesReserve accounts million

b.

Redo part (a) using a 10 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 accountsSecuritiesLoansReserve deposits at FedTransaction deposits $ million (Click to select)Reserve deposits at FedLoansReserve accountsTransaction depositsSecurities $ million

BSW Bank
Assets Liabilities
(Click to select)Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities $ million (Click to select)Transaction depositsReserve deposits at FedReserve accountsLoansSecurities $ million
(Click to select)Reserve deposits at FedReserve accountsLoansTransaction depositsSecurities million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
(Click to select)Reserve deposits at FedReserve accountsLoansSecuritiesTransaction deposits $ million (Click to select)Reserve accountsLoansReserve deposits at FedSecuritiesTransaction deposits $ million

BSW Bank
Assets Liabilities
(Click to select)LoansSecuritiesReserve deposits at FedReserve accountsTransaction deposits $ million (Click to select)SecuritiesLoansReserve deposits at FedTransaction depositsReserve accounts $ million
(Click to select)Reserve accountsLoansSecuritiesReserve deposits at FedTransaction deposits million

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