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CHANGING THE RESERVE REQUIREMENT ASSETS LIABILITIES

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  • pg 1
									             FEDERAL RESERVE BANK
             Bank A Reserves Bank BB
             Bank A           Bank
             Account
             Account         Account
                             Account
              Canceled check        Check

      BANK A                                 BANK B
      Household                              Business
      account                                account
Canceled     Money
check        Deposited                       Check
                   Check
      Household                              Business
                   Real goods and services
                        TYPES OF MONEY
                                                        1980 Percentages      2000 Percentages
Currency                                                 115        5.76%      530       7.47%
plus travelers checks                                      3        0.15%         8      0.11%
plus Demand deposits                                     261       13.08%      313       4.41%
plus Other checkable deposits*                            28        1.40%      239       3.37%
Equals M1                                                407       20.40%     1090      15.37%
plus Money market funds, retail                           64        3.21%      939      13.24%
plus savings deposits                                    400       20.05%     1872      26.40%
plus small time deposits**                               729       36.54%     1046      14.75%
Equals M2                                               1600       80.20%     4947      69.75%
plus large time deposits***                              260       13.03%      827      11.66%
plus repurchase agreements                                58        2.91%      360       5.08%
plus eurodollars                                          61        3.06%      191       2.69%
Money market funds- institutions only                     16        0.80%      767      10.82%
Equals M3                                               1995     100.00%      7092      100.00%
*negotiable order of w ithdraw al (NOW) and automatic transfer service (ATS) accounts
as w ell as credit union share and thrift institution demand deposits
**less than $100,000 excluding retirement accounts
***$100,000 or more but excluding foreign
SETTING UP A NEW BANK AND TAKING DEPOSITS
  ASSETS                    LIABILITIES

  2b. Reserves at Fed 100   2a. Transactions Account 100




  1b. Building        60    1a. Equity             100
  1c. Equipment       40



 TOTAL ASSETS        200     TOTAL LIABILITIES 200
    INVESTING NEW RESERVES
ASSETS                   LIABILITIES

3a. Reserves at Fed 60   2a. Transactions Account 100
                         3d. Loan adds purchasing
3b. Securities      40       power to Transactions
                             Accounts              50
3c Loans            50        NEWLY CREATED MONEY
1b. Building        60    1a. Equity          100
1c. Equipment       40



TOTAL ASSETS      250    TOTAL LIABILITIES 250
THE BORROWER DRAWS DOWN THE LOAN
  ASSETS                        LIABILITIES

  3a. Reserves at Fed 60       2a. Transactions Account 100
  4b. Subtracted when          3d. added by loan         50
      Fed transfers reserves   4a. Subtracted when
      to another bank -50            borrower spends     -50
  3b. Securities        40
  3c Loans              50
  1b. Building         60      1a. Equity              100
  1c. Equipment        40


 TOTAL ASSETS        200       TOTAL LIABILITIES 200
 CHANGING THE RESERVE REQUIREMENT
ASSETS                  LIABILITIES

   Reserves at Fed 10   Transactions Account 100
                        1b loan adds money
   Securities     40       to transactions
                           accounts            5
   Loans           50
1a new loans        5
   Building        60   Equity              100
   Equipment       40


TOTAL ASSETS     205    TOTAL LIABILITIES 205
  CHANGING THE RESERVE REQUIREMENT
ASSETS                   LIABILITIES

    Reserves at Fed 10     Transactions Account 100
2a. Reserve drawn         1b loan adds money
       down         -5        to transactions
    Securities      40          accounts           5
                          2b. Borrower writes check
   Loans           50          on account         -5
1a new loans        5

   Building         60     Equity               100
   Equipment        40
TOTAL ASSETS      200    TOTAL LIABILITIES 200
        OPEN MARKET OPERATIONS
ASSETS                          LIABILITIES

      Reserves at Fed 5            Transactions Account 100
1b.   FED pays reserves +10     2b. Bank adds money
3b.   FED transfers                 to transactions
      reserves to another           account              10
      bank                -10
      Securities       40
1a.   Bank sells
      securities         -10    3a. Borrower draws down
      Loans             55           loan               -10
2a.   Bank makes loans 10

   Building             60         Equity               100
   Equipment            40
TOTAL ASSETS          200       TOTAL LIABILITIES 200
                  DISCOUNTING
ASSETS                        LIABILITIES

    Reserves at Fed 5            Transactions Account 100
1b. Reserves from Fed 15      2b. Bank adds money
3b. FED transfers                 to transactions
    reserves to another           account              15
    bank                -15   3a. Borrower draws down
    Securities       30           loan                -15

    Loans          65
2a. Bank makes loans 15        1a. Discounts            15

                                  Equity               100
   Building           60
   Equipment          40
TOTAL ASSETS        215       TOTAL LIABILITIES 215
  CHANGING THE RESERVE REQUIREMENT
  FOR A MONOPOLY BANKING SYSTEM

ASSETS                  LIABILITIES

   Reserves at Fed 10     Transactions Account 100
                         1b loan adds money
                            to transactions
   Securities     40        accounts           100

   Loans           50
1a new loans      100

   Building        60     Equity              100
   Equipment       40
TOTAL ASSETS     300    TOTAL LIABILITIES 300
ASSETS         LIABILITIES




TOTAL ASSETS   TOTAL LIABILITIES
ASSETS         LIABILITIES




TOTAL ASSETS   TOTAL LIABILITIES

								
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