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Statistical Techniques in Business and Economics15th EditionDouglas A. Lind, Samuel A. Wathen, William G. Marchal 1,236 solutions Overview The authors conclude their analysis by suggesting that a reassessment of U.S. reserve requirements may be in order. With banks becoming increasingly adept at managing their vault cash and Fed account balances to achieve competitive returns, reserve requirements that rely on pricing incentives might be a sensible alternative to the current system. What percent is the reserve requirement?Net transaction account balances above the low reserve tranche were subject to a reserve requirement ratio of 10 percent.
What does the reserve requirement require?Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals. Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates.
What is a minimum amount of reserves that banks hold?A bank's reserves are calculated by multiplying its total deposits by the reserve ratio. For example, if a bank's deposits total $500 million, and the required reserve is 10%, multiply 500 by 0.10. The bank's required minimum reserve is $50 million.
What would happen if the reserve requirement was 100%?With a ratio of 100% this means that even if every single customer demanded to take out their money, the bank will have it all available. This is clearly a very safe form of banking, but as described so far, the bank would simply be acting like a safe deposit box. It would not be able to make any loans.
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