<Tr> <Td_colspan="12"> (Negative numbers represent expenditures; losses in revenue not included .) </Td> </Tr> <P> Beginning December 18, 2008, the Federal Reserve System directly established interest rates paid on required reserve balances and excess balances instead of specifying them with a formula based on the target federal funds rate . On January 13, Ben Bernanke said, "In principle, the interest rate the Fed pays on bank reserves should set a floor on the overnight interest rate, as banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed . In practice, the federal funds rate has fallen somewhat below the interest rate on reserves in recent months, reflecting the very high volume of excess reserves, the inexperience of banks with the new regime, and other factors . However, as excess reserves decline, financial conditions normalize, and banks adapt to the new regime, we expect the interest rate paid on reserves to become an effective instrument for controlling the federal funds rate ." </P> <P> Also on January 13, 2009, Financial Week said Mr. Bernanke admitted that a huge increase in banks' excess reserves is stifling the Fed's monetary policy moves and its efforts to revive private sector lending . On January 7, 2009, the Federal Open Market Committee had decided that, "the size of the balance sheet and level of excess reserves would need to be reduced ." On January 15, 2009, Chicago Federal Reserve Bank president and Federal Open Market Committee member Charles Evans said, "once the economy recovers and financial conditions stabilize, the Fed will return to its traditional focus on the federal funds rate . It also will have to scale back the use of emergency lending programs and reduce the size of the balance sheet and level of excess reserves . Some of this scaling back will occur naturally as market conditions improve on account of how these programs have been designed . Still, financial market participants need to be prepared for the eventual dismantling of the facilities that have been put in place during the financial turmoil" </P> <P> At the end of January 2009, excess reserve balances within the Federal Reserve System stood at $793 billion but less than two weeks later on February 11, 2009, total reserve balances had fallen to $603 billion . On April 1, 2009, reserve balances had again increased to $806 billion . By August 2011, they had reached $1.6 trillion . </P>

Fred amount of excess reserves held by banks