In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to indicate how the balance sheets would read after each of transactions a to c is completed. Do not cumulate your answers; that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are in billions of dollars. Consolidated Balance Sheet: All Commercial Banks
A B C
Assets:
Reserves $33
Securities $60
Loans $60
Liabilities and net worth:
Checkable deposits $150
Loans from the Federal Reserve Banks $3
Consolidated Balance Sheet: 12 Federal Reserve Banks
A B C
Assets:
Securities $60
Loans to commercial banks $3
Liabilities and net worth:
Reserves of commercial banks $33
Treasury deposits $3
Federal Reserve Notes $27
a. A decline in the discount rate prompts commercial banks to borrow an additional $3 billion from the Federal Reserve Banks. Show the new balance-sheet numbers in column 1 of each table.
b. The Federal Reserve Banks sell $5 billion in securities to the commercial banks, who pay for the bonds with reserves. Show the new balance-sheet numbers in column 2 of each table.
c. The Federal Reserve Banks buy $4 billion of securities from commercial banks. Show the new balance-sheet numbers in column 3 of each table.