Suppose that you run a bank with 900 million dollars in demand deposits and 100 million dollars in capital. The bank holds 300 million dollars in reserves, 200 million dollars in Treasuries, and 500 million dollars in loans. ((100-7)/2.5)% of the demand deposits are withdrawn from the bank. How would you adjust your balance sheet in response to this deposit outflow? Has your leverage ratio changed? In a good way or a bad way? If in a bad way, how might you fix it? You can assume that Treasuries can be sold quickly while loans cannot be liquidated in time to meet your reserve requirement.

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