In the table above, I have used the same basic format that I used to describe your mortgage loan earlier. The transactions with Your Bank and Other Bank that deal with your mortgage loan remain the same. I have adjusted the balances of these accounts with Your Bank and Other Bank to reflect the more representative figures I presented with Your Bank Balance Sheet. (Remember: back button to return from that link.)

As you can see from the highlighted figures these new balances create a problem with a 10% Effective Reserve Ratio (a problem I alluded to earlier). Your Bank has actual reserves of $7,287,070, however, based on the 10% Effective Reserve Ratio and their deposit levels of $73,515,000 they need to maintain reserves of $7,351,500. Their actual reserves fall $64,430 short of required reserves. (You can follow the same problem for Other Bank in its column.)

If we stick with the assumption of a 10% Reserve Ratio, I will show on the next page how these banks can solve this problem with transactions in…