The selling of the bond by the Federal Reserve does not change the amount of demand deposits the bank has (ie is liable for) and therefore does not change the amount of required reserves the bank must hold.
However, the bank is buying the bonds from the Fed with their reserves, and if the bank was already fully loaned out (ie had 0 excess reserves), the bank would become deficient in required reserves due to this purchase.
In a normal situation, banks would either do short term borrowing from other banks or the Fed. But, if neither of these were available to a bank, the bank would need to call in loans which would lead to money destruction.
This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.
20 окт 2024
