# How does the Fed's bond buying program create excess reserves?

**URL:** <https://boards.straightdope.com/t/how-does-the-feds-bond-buying-program-create-excess-reserves/691803>\
**Category:** Factual Questions\
**Created:** [June 27, 2014, 6:28pm UTC](https://boards.straightdope.com/t/how-does-the-feds-bond-buying-program-create-excess-reserves/691803 "2014-06-27T18:28:39Z")\
**Posts on this page:** 3\
**Page:** 1

<div class="post-metadata">

**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\
**Post date:** [June 27, 2014, 6:28pm UTC](https://boards.straightdope.com/t/how-does-the-feds-bond-buying-program-create-excess-reserves/691803/1 "2014-06-27T18:28:39Z")

</div>

> [@](#):
>
> The Fed’s purchases created $2.54 trillion of bank reserves in excess of what lenders are required to hold against deposits.

[http://www.bloomberg.com/news/2014-06-11/fed-prepares-to-keep-super-sized-balance-sheet-for-years-to-come.html](http://www.bloomberg.com/news/2014-06-11/fed-prepares-to-keep-super-sized-balance-sheet-for-years-to-come.html)

---

<div class="post-metadata">

**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\
**Post date:** [June 27, 2014, 7:12pm UTC](https://boards.straightdope.com/t/how-does-the-feds-bond-buying-program-create-excess-reserves/691803/2 "2014-06-27T19:12:27Z")

</div>

> [@Linden\_Arden](#):
>
> [Fed Prepares to Maintain Record Balance Sheet for Years - Bloomberg](http://www.bloomberg.com/news/2014-06-11/fed-prepares-to-keep-super-sized-balance-sheet-for-years-to-come.html)

[QUOTE=Bloomberg]  
Seeking more ways to stimulate growth, the Fed then began an effort to influence longer-term rates on home loans and other debt with purchases of longer-term Treasuries, mortgage-backed securities and housing-agency debt.  
[/QUOTE]

So the FOMC has been buying up longer-term Treasuries, mortgage-backed securities and housing-agency debt. They have those assets on their balance sheets. The lenders have the cash from those sales in their reserve accounts.

---

<div class="post-metadata">

**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\
**Post date:** [June 28, 2014, 5:49am UTC](https://boards.straightdope.com/t/how-does-the-feds-bond-buying-program-create-excess-reserves/691803/3 "2014-06-28T05:49:42Z")

</div>

Yes. The Fed buys bonds and exchanges them for cash. Banks take that cash and add them to reserves. Reserves over and above required reserves are called excess reserves.

That doesn’t always happen. If banks lowered lending standards a smidgeon, more of those excess reserves would be loaned out, thus fueling economic activity.