Term
|
Definition
| Banks are required by the Federal Reserve to maintain a minimum amount of reserves -- cash in their vault and/or their checking accounts at the Federal Reserve Bank. The fractional reserve requirement is currently 10 percent against transactions and zero percent against non transactions deposits. |
|
|
Term
|
Definition
| Reserves over and above required reserves |
|
|
Term
|
Definition
| What can happen in the banking system as a whole cannot necessarily happen in an individual bank!! |
|
|
Term
| Sources of Reserves (and, therefore, excess reserves) |
|
Definition
attract primary deposits
sell assets
borrow (discount, federal funds, repos, etc) |
|
|
Term
| The transactions: Assumptions |
|
Definition
fractional reserve requirement is 10%
all excess reserves are loaned out
there are no cash withdrawals from the banking system the process begins with a primary deposit at Bank F of $1,000 |
|
|
