Which is the controlling portion of deposits banks must hold

Reference no: EM13186307

The FED has three ways to expand or contract money and credit. The first way would be for the FED to buy existing U.S. Treasury securities. They do this by using the equivalent of newly issued currency. What this does is it helps to expand the reserve base and the ability of banks to make loans and expand money and credit. The Fed can also change reserve requirements, which is the controlling portion of deposits that banks must hold as vault cash or on deposit at the FED. This affects the available liquidity within the market. Lastly the FED can permit certain banks to borrow from it directly on a temporary basis. This provides the banks with a temporary means for obtaining reserves. These loans are given a discount interest rate.

Reference no: EM13186307

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