Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. if the federal reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of
The excess reserves would simply be the difference between the old required ratio and the new required ratio. In this case, that would be (20% of $100M) - (15% of $100M), or $5 million. The bank would be required to have $5 million less in reserves in the Fed than before the reserve ratio was changed.
