Suppose that Gustine Savings and Loans has the following balance sheet items: $85 million in deposits, $56 million in loans, $23 million in securities, $5 million in bank capital and $11 million in total reserves. Assume that the reserve requirement ratio is 10%. (a) Complete the balance sheet for Gustine Savings and Loans. [6 Points] (b) Suppose that Mrs. Hernandez, the richest woman in Gustine, withdraws $4 million from her checking account held at Gustine Savings and Loans. Illustrate the new balance sheet for Gustine Savings and Loans immediately after the deposit outflow. What happens to total reserves? What is the problem that is faced by Gustine Savings and Loans? [6 Points] (c) List three options that Gustine Savings and Loans can adopt to meet its shortfall in reserves. What are the costs associated with each of the options listed? [6 Points] (d) Prior to the creation of the Federal Deposit Insurance Corporation (FDIC) in 1934, there was no federal deposit insurance. Would liquidity management have been of greater or lesser concern to banks during those years? Briefly explain. [7 Points]

Suppose that Gustine Savings and Loans has the following balance sheet items: $85 million in deposits, \$56 million in loans, \$23 million in securities, \$5 million in bank capital and \$11 million in total reserves. Assume that the reserve requirement ratio is 10%. (a) Complete the balance sheet for Gustine Savings and Loans. [6 Points] (b) Suppose that Mrs. Hernandez, the richest woman in Gustine, withdraws $4 million from her checking account held at Gustine Savings and Loans. Illustrate the new balance sheet for Gustine Savings and Loans immediately after the deposit outflow. What happens to total reserves? What is the problem that is faced by Gustine Savings and Loans? [6 Points] (c) List three options that Gustine Savings and Loans can adopt to meet its shortfall in reserves. What are the costs associated with each of the options listed? [6 Points] (d) Prior to the creation of the Federal Deposit Insurance Corporation (FDIC) in 1934, there was no federal deposit insurance. Would liquidity management have been of greater or lesser concern to banks during those years? Briefly explain. [7 Points]