When Federal Reserve sells government bonds, commercial banks' reserves decreases.
What happens when a bank buys government bonds?
In quantitative easing, the central bank buys government bonds. When you buy a government bond, its price goes up and the yield (the interest you pay to bondholders) goes down. This yield is also called bond yield. Government bond yields have a significant impact on other lending rates.
What about reserves in the banking system when Federal Reserve buys Treasury bonds?
When the Federal Reserve buys bonds from bankers, reserves and excess reserves increase by the same amount because no auditable deposits have been created.
What are commercial bank reserves?
A bank reserve is the minimum amount of cash that a bank must hold in case of unexpected demand. Excess reserves are excess cash that banks hold rather than lend out.
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