How Does the Federal reserve Create the Money Supply The Working of Commercial Banks (continued) Apparently, the reserve ratio is a very important policy variable for a bank. Low reserve ratio may cause the danger that the bank can not meet a large deposit withdrawn from the public (causing bankruptcy ). Yet a high reserve ratio may cause less loan and hence less profitHow Does the Federal Reserve Create the Money Supply • The Working of Commercial Banks (continued): – Apparently, the reserve ratio is a very important policy variable for a bank. Low reserve ratio may cause the danger that the bank can not meet a large deposit withdrawn from the public (causing bankruptcy). Yet a high reserve ratio may cause less loan and hence less profit