BSW Bank currently has $650 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 4 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to BSW in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)
Panel A: Initial balance sheets
Federal Reserve Bank
AssetsLiabilities
Transaction deposits at FedReserve accountsLoans$ million LoansReserve deposits at FedTransaction depositsReserve accountsSecurities$ million
BSW Bank
AssetsLiabilities
SecuritiesReserve accountsTransaction depositsLoansReserve deposits at Fed$ million Transaction depositsLoansReserve deposits at Fed$ million
SecuritiesLoansReserve accountsReserve deposits at FedTransaction depositsmillion
Panel B: Balance sheet after all changes
Federal Reserve Bank
AssetsLiabilities
LoansReserve depositsReserve deposits at Fed$ million Transaction depositsLoansReserve deposits at Fed$ million
BSW Bank
AssetsLiabilities
SecuritiesReserve deposits at FedTransaction depositsLoansReserve accounts$ million LoansTransaction depositsReserve deposits at FedSecuritiesReserve accounts$ million
LoansReserve depositsReserve deposits at Fedmillion b. Redo part (a) using a 10 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)
Panel A: Initial balance sheets
Federal Reserve Bank
AssetsLiabilities
Transaction depositsLoansReserve deposits at Fed$ million Reserve deposits at FedReserve deposits$ million
BSW Bank
AssetsLiabilities
Reserve deposits at FedSecuritiesTransaction depositsReserve accountsLoans$ million depositsReserve deposits at FedReserve accounts$ million
Transaction deposits at FedLoansReserve accountsmillion Panel B: Balance sheet after all changes
Federal Reserve Bank
AssetsLiabilities
Reserve accountsTransaction depositsLoansReserve deposits at FedSecurities$ million Transaction accountsLoansReserve deposits at Fed$ million
BSW Bank
AssetsLiabilities
Reserve deposits at FedReserve accountsTransaction depositsLoansSecurities$ million LoansReserve deposits at FedTransaction accounts$ million
Transaction deposits at FedReserve accountsmillion