6. Required and excess reserves Suppose that Walls Fergo Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. Assume the Federal Reserve has the reserve requirement set at 10% Based on this information, complete the following table detalling Walls Fergo Bank's reserves, required reserves, and excess reserves. Reserves (Dollars) Walls Fergo Required Reserves (Dollars) Excess Reserves (Dollars)

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Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.