Deposit Liability Summary

Banks can increase deposit liabilities using two methods:

1. Banks increase deposit liabilities in exchange for the receipt of additional assets, usually in the form of bank reserves – either cash or a deposit at the Federal Reserve Bank, and
2. Banks create new deposit liabilities (by ledger entry) for the purpose of acquiring bank investments, primarily notes from customers.

Summary of Securities Purchases

When banks purchase securities from the Federal Reserve it has two simultaneous effects:

1. their securities account increases by the amount of dollars spent for those securities, and
2. their reserve account decreases by the same amount of dollars.

When banks sell securities to the Federal Reserve the effects are exactly the inverse.