Question

6. Jackson National Bank has the following balance sheet: (10 pts.) Assets Reserves Loans $50 million $450 million Liabilities Deposits Bank Capital $400 million $100 million If the bank suffers a deposit outflow of $50 million with a required reserve ratio of 10 percent, show and explain the effects on the T-Account and discuss the possible options that the bank president/manager can use if necessary to remain compliant

Answer 1

6) A deposit outflow of $50 million would change the T account in the following way:

Assets	liabilities
Reserves: $0	deposits:$350 million
Loans:$450 million	Bank capital:$100 million

But it is also given that the required reserve ratio is 10%

So the bank could fulfill this in 3 ways:

It could borrow the amount of $35 million from the federal funds market, or from federal discount window.

It could also sell its required loans worth$35 million.

For first two the T account would be as given

Assets	Liabilities
Reserves: $35 million	Deposits :$350 million
Loans:$450million	bank capital :$100 million
	Bank borrowings :$35 million

The selling of loans would be shown as below

Assets	Liabilities
Reserves:$35 million	Deposits :$350 million
Loans:$415 million	bank capital :$100 million