To find out how much excess reserves a bank has, you need to calculate the required reserves first and then subtract them from the actual reserves.
The required reserves can be calculated by multiplying the total deposits by the reserve requirement ratio:
Required reserves = Deposits * Reserve requirement ratio = $100 million * 0.15 = $15 million
To find the excess reserves, subtract the required reserves from the actual reserves:
Excess reserves = Actual reserves - Required reserves = $17 million - $15 million = $2 million
Therefore, the bank has $2 million in excess reserves.
if a bank has $100 million in deposits and $17 million in reserves with a reserve requirement of 0.15, how much does its excess reserves have?
3 answers
how much can it lend?
The amount that a bank can lend is determined by its excess reserves. A bank can lend a portion of its excess reserves, while still maintaining the required reserves set by the reserve requirement ratio.
In this case, the bank has $2 million in excess reserves. However, the specific lending capacity of the bank would depend on various factors such as its lending policies, risk appetite, and regulatory restrictions.
Generally, banks are allowed to lend a multiple of their excess reserves. The specific multiple often varies depending on the country and the bank's individual circumstances. For illustration purposes, let's say the bank is permitted to lend up to 10 times its excess reserves.
Lending capacity = Excess reserves * Lending multiple
= $2 million * 10
= $20 million
Based on this assumption, the bank could have a lending capacity of up to $20 million.
It's important to note that this calculation is based on general assumptions, and the lending capacity of a bank can vary depending on a range of factors.
In this case, the bank has $2 million in excess reserves. However, the specific lending capacity of the bank would depend on various factors such as its lending policies, risk appetite, and regulatory restrictions.
Generally, banks are allowed to lend a multiple of their excess reserves. The specific multiple often varies depending on the country and the bank's individual circumstances. For illustration purposes, let's say the bank is permitted to lend up to 10 times its excess reserves.
Lending capacity = Excess reserves * Lending multiple
= $2 million * 10
= $20 million
Based on this assumption, the bank could have a lending capacity of up to $20 million.
It's important to note that this calculation is based on general assumptions, and the lending capacity of a bank can vary depending on a range of factors.
1 answer