An interesting development that happened in late 2008, relating to the Fed and bank reserves, is that the Fed:
A) Reduced the reserve ratio drastically
B) Required banks to hold more excess reserves
C) Started paying interest on the banks' reserves
D) Gave back all the reserves to the banks to hold as vault cash

Question

Quizplus · Accepted Answer

The correct answer is that the Fed started paying interest on the banks' reserves. This measure was taken in response to the financial crisis of 2008, during which banks were hesitant to lend to each other and to businesses and consumers. By paying interest on reserves, the Fed provided an incentive for banks to keep their excess reserves with the Fed instead of lending them out, helping to stabilize the banking system.

An Interesting Development That Happened in Late 2008, Relating to the Fed