Introduction Consider the following balance sheet for the First National Bank (M stands for millions of dollars; assume the bank holds no assets or...

Assume that the reserve requirement (R) is 5%.

Question 1:

Find E, the percentage of deposits that the bank is holding as “excess reserves.”Show your work.

Question 2:

If $100M worth of the bank’s loans default, show the bank’s balance sheet immediately after the default. Assume nothing has been done to try to offset the default.