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First National Bank sells $120 worth of its short-term securities to the Federal Reserve in accordance with the 12 percent mandated reserve ratio. First National's reserves will rise by $120 as a result of this decision. It has a $240 surplus in reserves.
The minimum percentage of deposits that banks and other financial institutions are required to hold in reserves by the Federal Reserve is known as the required reserve ratio. when the Fed conducts a sizable open market purchase to generate bank reserves at a low or possibly zero federal funds rate.
Simply dividing the amount of money a bank must keep in reserve by the amount of money it has on deposit yields the required reserve ratio. For instance, if a bank had to hold $500,000 in reserves along with its $10 million in deposits, the minimum reserve ratio would be 1/20, or 5%.
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First National Bank
Assets
Liabilities and Owners' Equity
Reserves
$1,200
Deposits
$9,000
Loans
$8,000
Debt
$800
Short-term securities
$800
Capital (owners' equity)
$200
Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term securities to the Federal Reserve. This action will
