The following information belongs to Banks A & B:

Bank A:

Reserves 10

Deposits 100

Loans 90

Bank Capital 10

Securities 10

Bank B:

Reserves 14

Deposits 110

Bank Capital 4

Loans 90

Securities 10

1. List the above items in a T account

2. Assume the desired reserve is 10%. Calculate the desired and the excess reserve, if any, for both banks.

3. A client withdrew 10 million from Bank B. Show the changes in the T account of Bank B. If there is a reserve deficiency what would the bank do?

4. Suppose that each Bank made a $5 million loan to Power Investments Incorporated. Power Investments uses its loans to undertake a risky project, goes bankrupt and defaults on its loans. How will this affect each of the two banks? Show your work

5. What types of government regulations might have prevented these outcomes in d?

6. What types of actions by the banks might have prevented these outcomes in d?