A system in which banks keep only a percentage of their deposits on reserve as vault cash and deposits at the Fed.
Requiered Reserves
The minimum balance that the Fed requieres a bank to hold in vault cash or on deposit with the Fed.
Requiered reserve ratio
The percentage of deposits that the Fed requieres a bank to hold in bank cash or on deposits with the Fed.
Excess reserves
Potential loan balances held in vault cash or on deposits with the Fed in excess of requiered reserve.
Monetary policy
The federal reserve's use of open market operations, changes in the discount rate, and changes in the requiered reserve ratio to change the money supply (M1)
Open market operations
The buying and selling of goverment securities by the Fed.
Discount rate
The interest rate the Fed charges on loans of reserves to banks
Federal faunds
A private market in which banks lend reserve for less than 24 hours.
Federal found rate
The interes rate banks charge for overnight loans of reserves to other banks.