Question: Frost Street National Bank currently holds 750 million in transaction
Frost Street National Bank currently holds $750 million in transaction deposits subject to reserve requirements but has managed to enter into sweep account arrangements with its transaction deposit customers affecting $150 million of their deposits. Given the current legal reserve requirements applying to transaction deposits (as mentioned in this chapter), by how much would Frost Street’s total legal reserves decrease as a result of these new sweep account arrangements, which stipulate that transaction deposit balances covered by the sweep agreements will be moved overnight into savings deposits?
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