Chapter 11 - Liquidity and Reserves Management: Strategies and Policies
CHAPTER 11
LIQUIDITY AND RESERVES MANAGEMENT: STRATEGIES AND POLICIES
Concept Checks
11-9. Suppose that a bank estimates its total deposits for the next six months in millions of
dollars to be, respectively, $112, $132, $121, $147, $151, and $139, while its loans (also in
millions of dollars) will total an estimated $87, $95, $102, $113, $101, and $124, respectively,
over the same six months. Under the sources and uses of funds approach, when does this bank
face liquidity deficits, if any?
11-22. Suppose a bank maintains an average clearing balance of $5 million during a period in
which the Federal funds rate averages 6 percent. How much would this bank have available in
credits at the Federal Reserve Bank in its district to help offset the charges assessed against the
bank for using Federal Reserve services?
Problems
11-2. Mountain Top Savings is projecting a net liquidity deficit of $10 million next week
partially as a result of expected quality loan demand of $32 million, necessary repayments of
previous borrowings of $15 million, planned stockholder dividend payments of $10 million,
expected deposit inflows of $26 million, revenues from nondeposit service sales of $18 million,
scheduled repayments of previously made customer loans of $23 million, asset sales of $10
million, other operating expenses of $15 million, and money market borrowings of $15 million.
How much must Mountain Top’s expected deposit withdrawals be for the coming week?
11-13. 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?
11-1