When the Federal Reserve sells T-bills in the open
these securities are bought by banks and used as
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 held excess legal reserves prior to October 2008,
lost a chance to earn extra
violated the regulations of the Federal
deprived customers of liquidity.
probably were anticipating large losses
on the loans they had made.