Suppose you were the manager of a bank with the following balance sheet.
 

You are required to hold 10 percent of checkable deposits as reserves. If you were faced with unexpected withdrawals of $30 million from time deposits, would you rather:

Draw down $10 million of excess reserves and borrow $20 million from other banks?

Draw down $10 million of excess reserves and sell securities of $20 million?

Explain your choice.

 
 

Transcribed Image Text:

Bank Balance Sheet (in millions) Liabilities Assets Reserves Securities Loans Checkable Deposits Time Deposits $820 | Borrowings $30 $200 $150 S600 $100