Monetary Policy With Interest On Reserves

In response to the emerging financial crisis of 2008, the Federal Reserve decided to increase the liquidity of the banking system. For this purpose, the Federal Reserve introduced or expanded a number of programs that made it easier for banks to borrow from it. For example, commercial banks were able to obtain additional loans through the Term Auction Facility, which the banks would then hold in their reserve accounts with the Federal Reserve. As a result of the combined financial market interventions, the balance sheet of the Federal Reserve increased from about $800 billion in September 2008 to more than $2 trillion in December 2008. Over the same time period, the reserve accounts of commercial banks with the Federal Reserve increased from about $100 billion to $800 billion.