A bank can only make a loan if it has
A) reserves equal to its deposits.
B) permission from the Federal Reserve.
C) excess reserves.
D) a creditworthy customer willing to pay a high interest rate.

Question

Quizplus · Accepted Answer

A bank can only make a loan if it has excess reserves, which are the amount of funds that a bank holds above the required reserve ratio. This is because banks use these excess reserves to lend to individuals or businesses seeking loans. Option A is incorrect because a bank can lend more than its reserves, as long as it has excess reserves. Option B is incorrect because while the Federal Reserve regulates banks, it does not give permission for individual loans. Option D is incorrect because while a bank needs creditworthy customers to lend to, it also needs to have excess reserves to make the loan in the first place.

A Bank Can Only Make a Loan If It Has