question archive Suppose a bank that is exactly meeting its reserve requirement experiences a sudden withdrawal of deposits
Suppose a bank that is exactly meeting its reserve requirement experiences a sudden withdrawal of deposits
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Suppose a bank that is exactly meeting its reserve requirement experiences a sudden withdrawal of deposits. What happens to the bank's balance sheet? What must the bank do to satisfy the reserve requirement?
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The assets and liabilities section of Balance sheet of bank will reduce by amount withdrawn from bank.
Now the bank can do three different things to meet the minimum requirement of reserves,
- Try to attract more deposits from new or existing clients.
- Try to recall loans given to clients.
- Borrow money from federal reserve bank or from interbank market.
