When the Federal Reserve sells T-bills in the open market,
these securities are bought by banks and used as reserves. there is no change in bank reserves because all balance sheets will balance. interest rates tend to fall and hence banks reduce their reserves. the Federal Reserve is paid in the form of bank reserves.
When banks hold excess legal reserves, they:
lose a chance to earn extra income. violate the regulations of the Federal Reserve. deprive customers of liquidity. probably are anticipating large losses on the loans they have made.
