MHM Bank currently has $400 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is increasing this requirement to 10 percent.

a.

Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts all excess reserves to loans, but borrowers return only 70 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesReserve accountsLoansReserve deposits at Fed	$ million	(Click to select)SecuritiesReserve accountsTransaction depositsLoansReserve deposits at Fed	$ million

MHM Bank
Assets		Liabilities
(Click to select)SecuritiesTransaction depositsLoansReserve accountsReserve deposits at Fed	$ million	(Click to select)LoansReserve accountsSecuritiesReserve deposits at FedTransaction deposits	$ million
(Click to select)Reserve accountsReserve deposits at FedTransaction depositsLoansSecurities	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)SecuritiesReserve accountsLoansTransaction depositsReserve deposits at Fed	$ million	(Click to select)Reserve deposits at FedLoansSecuritiesTransaction depositsReserve accounts	$ million

MHM Bank
Assets		Liabilities
(Click to select)Reserve accountsSecuritiesLoansTransaction depositsReserve deposits at Fed	$ million	(Click to select)Transaction depositsLoansSecuritiesReserve deposits at FedReserve accounts	$ million
(Click to select)LoansReserve accountsTransaction depositsSecuritiesReserve deposits at Fed	$ million

b.

Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 80 percent of its excess reserves to loans and borrowers return 90 percent of these funds to MHM Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel B" answers to 3 decimal places. (e.g., 32.161))

Panel A: Initial balance sheets

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsLoansReserve deposits at FedSecuritiesReserve accounts	$ million	(Click to select)Reserve accountsTransaction depositsSecuritiesLoansReserve deposits at Fed	$ million

MHM Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesLoansReserve deposits at FedReserve accounts	$ million	(Click to select)Reserve accountsLoansTransaction depositsReserve deposits at FedSecurities	$ million
(Click to select)LoansReserve accountsReserve deposits at FedTransaction depositsSecurities	$ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets		Liabilities
(Click to select)Transaction depositsSecuritiesLoansReserve deposits at FedReserve accounts	$ million	(Click to select)LoansTransaction depositsReserve deposits at FedReserve accountsSecurities	$ million

MHM Bank
Assets		Liabilities
(Click to select)SecuritiesTransaction depositsLoansReserve accountsReserve deposits at Fed	$ million	(Click to select)SecuritiesReserve accountsTransaction depositsReserve deposits at FedLoans	$ million
(Click to select)Reserve accountsLoansSecuritiesReserve deposits at FedTransaction deposits	$ million