Final answer:
When a bank is notified of an increase in required reserves, it can either reduce its loans or raise additional capital to come up with the cash.
Step-by-step explanation:
When a bank is notified that it must increase its required reserves, it has a few options to come up with the cash. One option is for the bank to reduce its loans to increase its reserves. For example, if a bank has $100 in deposits and a required reserve ratio of 10%, it must hold $10 in reserves. If the bank decides to reduce its loans by $50, it can increase its reserves by $5, bringing it to the required 10% reserve ratio.
Another option for the bank to come up with the cash is to raise additional capital. This can be done by issuing new shares of stock or by borrowing from other banks or investors. By raising capital, the bank can increase its reserves without reducing its loans.
Overall, the bank must find a way to increase its reserves in order to comply with the new required reserve ratio. This can be done by reducing loans or raising additional capital.