Creating a Bank

• Transaction #4: Depositing reserves in a federal reserve bank
• Required reserves
• Reserve Ratio = commercial bank's required reserves / commercial bank's checkable-deposit liabilities

Reserve Requirements

Excess Reserves = Actual Reserves - Required Reserves

Required Reserves = Checkable Deposits x Reserve Ratio

Assets

• Reserves
• Required reserves (rr) - % required by fed to keep on hand to meet demNd
• Excess Reserves (er) - % reserves over and above amount needed to satisfy minimum reserve ratio set by fed
• Loans to firms, consumers and other banks (earns interest)
• Loans to govt = treasury securities
• Bank property - if bank fails, you could liquidate the building/property

Liabilities + Equity

• Demand Deposits ($ put into bank)
• Times Deposits (CDs)
• Loans from: Federal Reserve and other banks
• Shareholders Equity - (to set up bank, you must invest your own money in it to have a stake in the bank's success or failure)