Final answer:
A bank anticipating growth in checkable deposits will send the minimum amount required as reserves to the Federal Reserve, complying with the reserve requirement. While banks can hold excess reserves, maintaining only the required reserves allows funds to be lent out or invested.
Step-by-step explanation:
When a bank anticipates that its holdings of checkable deposits will grow in the future, it is most likely to take action in line with the requirements set by the Federal Reserve. The reserve requirement is the minimum percentage of deposits that must be held by the bank either in its vaults or at the Federal Reserve. Banks may also decide to hold excess reserves in anticipation of future needs.
If a bank expects growth in checkable deposits, it will not necessarily send the exact amount equal to its checkable deposits as reserves to the Federal Reserve Bank. Instead, the most accurate action would be:
- It will send the minimum amount required as reserves to the Federal Reserve Bank.
This is because holding more than the minimum can result in opportunity costs for the bank, as those extra funds could be lent out or invested to generate interest income. However, for security reasons or to prepare for regulatory changes, a bank might also opt to maintain excess reserves.