Bank Excess Reserves: Understanding the Impact of Customer Withdrawals

What is the impact of a customer withdrawing $6,000 from their checking account at a bank with no initial excess reserves?

A) Acme's excess reserves are reduced by $6,000.

B) Acme will have excess reserves of $2,000.

C) Acme will have a required reserve deficiency of $3,000.

D) Acme will have a required reserve deficiency of $5,400.

Answer:

The impact of a customer withdrawing $6,000 from their checking account at a bank with no initial excess reserves depends on the bank's required reserve ratio.

Explanation:

In the banking system, reserves refer to the amount of cash that banks must hold against deposits made by their customers. This system is designed to ensure that the bank will have enough cash on hand to meet the withdrawal needs of its customers.

If Acme Bank initially has no excess reserves, and Guevara makes a withdrawal of $6,000, this will not result in Acme's excess reserves being reduced by $6,000, since there were no excess reserves to begin with. Consequently, options A and B are incorrect.

The impact on the required reserves depends on the bank's required reserve ratio. If the required reserve ratio is 10% for instance, the bank would need to have at least $600 in its reserves for Guevara's deposit. If the bank initially has no excess reserves, when Guevara withdraws $6,000, Acme's required reserves could be deficient by the amount they are supposed to have as per the reserve ratio ($600 in this example if the ratio is 10%), therefore option D) is also incorrect.

The correct answer would depend on the specific required reserve ratio that Acme Bank must follow.