Required and excess reserves Suppose that Third Fidelity Ban

Required and excess reserves Suppose that Third Fidelity Bank currently has $100, 000 in demand deposits and $65, 000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.

Solution

Reserves = Demand Deposits - Outstanding Loans

=> $100,000 - $65,000

=> $35,000

Required Reserves = 10% of $100,000

=> $10,000

Excess Reserves = Reserves - Required Reserves

=> $35,000 - $10,000

=> $25,000