Final answer:
For a bank to have lending power, its required reserves must exceed excess reserves. Required reserves are the minimum mandated by the Federal Reserve, and excess reserves are any additional reserves that can be used for lending.
Step-by-step explanation:
The student's question relates to the reserve requirements that banks must adhere to and how these relate to their lending power. The correct answer to the question is that for a bank to have lending power, its required reserves must exceed excess reserves (option d). Required reserves are the minimum amount of reserves a bank must hold as mandated by the Federal Reserve. When banks have reserves in excess of the required amount, those are referred to as excess reserves. It is the excess reserves that can be used for lending to customers. The reserves that a bank holds can be in various forms, including vault cash and deposits with Federal Reserve Banks.Reserve requirements are a key policy tool used by governments to influence bank behavior, including lending practices. During economic downturns, such as a recession, banks may choose to hold higher levels of excess reserves due to the elevated risk of loan defaults. Excess reserves provide a buffer for banks but at the same time limit their capacity to generate income through loans.