Final answer:
A bank goes bankrupt when its amount of bank capital becomes negative, indicating liabilities exceeding assets, which can lead to insolvency. While other factors like dropping required reserves or securities value are serious, they alone do not cause bankruptcy until they contribute to negative capital.
Step-by-step explanation:
A bank could potentially go bankrupt in several situations, but let's focus on the context of reserve requirements. Firstly, if a bank's required reserves drop below the mandated percent of demand deposits (in our scenario, less than 10 percent), it does not necessarily lead to bankruptcy but can indicate financial instability or regulatory issues. When we talk about reserves becoming negative, it essentially means that the bank has borrowed to maintain its reserve requirements, or that its liabilities exceed its assets.
Therefore, the answer is when the amount of bank capital becomes negative. This situation implies that the bank's debts exceed its assets, which could lead to insolvency and ultimately, bankruptcy. It is important to note that securities and reserves are parts of a bank's assets, so if they drop to zero, it could potentially lead to a negative capital situation, but on their own, these factors do not instantly lead to bankruptcy.
As for options to increase reserves if required, banks can raise capital, reduce lending, sell securities, or seek short-term loans. During economic downturns, banks may hold higher excess reserves beyond the minimum due to risk aversion. Similarly, an increase in reserve requirements would lead banks to hold more reserves, reducing the overall supply of money in the economy.