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News Link • Central Banks/Banking

QE for the People

•, Daniel Oliver

Banks are required to keep required reserves at the Fed. Banks that find themselves with a deficient reserve level have to borrow reserves from those with excess reserves, and the interest rate they pay is called the fed funds rate. The fed funds rate thereby sets the minimum level of funding for the banking system. The Federal Reserve used to set this rate through open market operations: buying Treasuries would add reserves to the banking system and lower the fed funds rate (and vice-versa).