Question

Suppose a bank has​ $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. if the federal reserve reduces the required reserve ratio to 15​ percent, then the bank will now have excess reserves of

Answer 1

The excess reserves would simply be the difference between the old required ratio and the new required ratio. In this case, that would be (20% of $100M) - (15% of $100M), or $5 million. The bank would be required to have $5 million less in reserves in the Fed than before the reserve ratio was changed.