Asked by Katie Flynn on Jun 13, 2024
Verified
If the Westminster National Bank has total deposits of $200 billion,has $50 billion in reserves with the Federal Reserve System,and at the same time is required to allocate 20% of its total deposits as required reserves,what are its excess reserves?
A) $50 billion
B) $150 billion
C) $10 billion
D) $90 billion
Excess Reserves
Assets retained by banks exceeding the compulsory minimum reserves stipulated by central bank regulations.
Deposits
Money placed into a financial institution for safekeeping, which can earn interest over time depending on the type of account.
Reserves
Assets kept on hand by a bank, company, or government to meet future liabilities, emergencies, or regulatory requirements.
- Recognize the elements and significance of bank reserves and the reserve mandate.
- Differentiate among actual, required, and surplus reserves within the banking framework.
Verified Answer
DJ
Danielle JeanaeJun 20, 2024
Final Answer :
C
Explanation :
The required reserves for Westminster National Bank will be 20% of $200 billion, which is $40 billion. However, they have $50 billion in reserves with the Federal Reserve System, which is more than the required reserves. Therefore, they have excess reserves of $10 billion ($50 billion in reserves minus $40 billion in required reserves). Thus, the correct answer is C: $10 billion.
Learning Objectives
- Recognize the elements and significance of bank reserves and the reserve mandate.
- Differentiate among actual, required, and surplus reserves within the banking framework.