Balance Sheet for Princeton Bank(amount in millions of dollars) Assets----------

Question

Balance Sheet for Princeton Bank(amount in millions of dollars)
Assets---------------------Liabilities+capital
Reserve 30--------------Transactions 300
Securities 140-----------Deposit 0
Loans 280---------------Nontransacations 140
Total assets 450---------Deposits
Capital
Total liabilities+ Capital 450
Of Princeton Bank's reserves, $6million are required clearing balances held at the federal reserve bank of Philadelphia. Stratistics for the economy as a whole are
D=$2,000 billion, R= $200 billion, C/D=0.2=ratio of nontransaction deposits to transaction deposits
N/D=2.0=ratio of nontransaactions deposits to transcation deposits, MMF/D=1.6=ratio of retail money-market mutual funds to transaction deposits, Q=0.08=8%=required reserve ratio on transaction deposits=RR/D=ratio of required reserve to transaction deposits, RCB/D=0.02=2%=ratio of required clearing balances to transaction deposits

Question; Suppose that instead of raising the reserve requirement as in part C, the FED sells $150 billion of securities in the open market, including $30 million to a customer of Princeton Bank. What happen to Princeton Bank's balance sheet? Does it have excess reserve, or is it short of reserves? Calculate the new M1, M2,N,D,C,MMF,RCB, and R?
Report Abuse

Explanation / Answer

The financial services industry began to rebound in 2010 as the nation emerged from the economic crisis that began in 2007. Among the key developments were repayments to the Troubled Asset Relief Program (TARP), the federal rescue program for the financial services industry set up in 2008. As of June 2010 TARP repayments had surpassed the total amount of TARP funds outstanding, with repayments at $194 billion and funds outstanding at $190 billion. In addition to repayments, taxpayers have also received a further return on TARP investments of $23 billion through dividends, interest and other income. As of that date, banks had repaid more than 75 percent of disbursed TARP funds to the Treasury. The year also marked the passage of landmark legislation that will have widespread impact on the financial services industry. In July 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, a sweeping overhaul of how financial services are regulated in the United States. Key provisions include: • The creation of the Financial Stability Oversight Council and the Office of Financial Research, which increase federal oversight of large bank holding companies and “systemically risky” nonbank financial companies. • The establishment of a liquidation fund supported by future assessments on large banks. • Registration and recordkeeping requirements for hedge funds. • The creation of the Federal Insurance Office (FIO) to monitor the insurance industry, while maintaining state regulation of insurance. The FIO has the authority to identify regulatory gaps or systemic risk, deal with international insurance matters and monitor the extent to which underserved communities have access to affordable insurance products. • The establishment of the Consumer Financial Protection Bureau, with consumer regulatory authorities consolidated from other banking agencies, to reside in, but stay autonomous from, the Federal Reserve. • The reduction of total TARP spending from $700 billion to $475 billion and a prohibition on new TARP programs.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.