A commercial bank, Bank A, approves a $50,000 loan for a client. The client immediately uses the entire loan amount to purchase a car from a dealership that holds its account at a different commercial bank, Bank B. Once the payment from the client to the dealership is fully processed and settled between the two banks, what is the resulting impact on the balance sheets of the banks and the overall money supply?

Balance Sheet Impact of an Inter-Bank Loan Transfer

Reserve Movements in Inter-Bank Transactions

A client takes out a new loan from Bank A and immediately uses the funds to pay a vendor who banks at Bank B. Arrange the following events in the correct chronological order to reflect the settlement of this transaction.

When a loan created by one bank is used to make a payment to a customer at a different bank, the total amount of central bank reserves held by the entire commercial banking system decreases as part of the settlement process.

Bank Alpha grants a $10,000 loan to a borrower, who immediately uses the funds to pay a supplier with an account at Bank Beta. After the transaction is fully settled between the two banks, match each balance sheet item with the correct resulting change.

The Ripple Effect of a Single Loan

When a loan from one bank is used to make a payment to a customer at a different bank, the settlement process causes a transfer of reserves between the two banks. However, the total quantity of central bank reserves held by the entire commercial banking system ____.

Critiquing an Inter-Bank Transfer Analysis

Analyzing Balance Sheet Transformations in an Inter-Bank Transaction