Question

The Federal Reserve mandates banks and thrifts to deposit in their regional Federal Reserve Bank a fraction of their checkable deposits as:

Answer 1

Answer:

Required Reserves

Explanation:

Fractional banking is a banking system where a portion of customer's deposits is kept as reserves while remaining portion is lent out. The amount kept as reserves is determined by the required reserve ratio set by the Central bank.

Reserves is the total amount of a bank's deposit that is not given out as loans

Reserves = Deposits - outstanding loans

$100,000 - $70,000 = $30,000

there are 2 types of reserves

1. Required reserves is the percentage of deposits required of banks to keep as reserves by the central bank

Required reserves = reserve requirement x deposits

0.2 x $100,000 = $20,000

2. Excess reserves is the difference between reserves and required reserves

$30,000 - $20,000 = $10,000