The following table shows the balance sheet for the Regal Bank, a hypothetical c

Question

The following table shows the balance sheet for the Regal Bank, a hypothetical commercial bank. Assume that the Regal Bank hat achieved its target reserve ratio. a. What is the Regal Bank's target reserve ratio? b. What is the value of the owners' investment in the bank? c. Suppose someone makes a new deposit to the Regal Bank of $100. Draw a new balance sheet showing the immediate effect of the new deposit. What is the Regal Bank's new reserve ratio? d. Suppose instead that someone withdraws $100 cash from the Regal Bank. Show the new balance sheet and the new reserve ratio.

Explanation / Answer

a) Reserve ratio = (Reserves / Deposits ) X 100

Reserve ratio = 5%

b) The value of owners investment in bank is $ 400 .

C)

The banks new reserve ratio = ( $ 300 / $ 4,100) X 100

The banks new reserve ratio = 7.32%

d)

The banks new reserve ratio = ( $ 100 / $ 3,900) X 100

The banks new reserve ratio = 2.56 %

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Assets Liabilities Reserves $300 Deposits $4,100 Loans $4,200 Capital $400

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