Of the dealers through which the Fed buys and sells securities, some are not member banks. The purchase of securities from these non-bank dealers has a different effect on the quantity of money.

When the Fed buys securities from one of these non-bank dealers, they credit the Reserves account of the bank with which that dealer has an account, for the benefit of that dealer. The bank, in turn, credits the account of the dealer, increasing its own deposit liability.

In the example above, the Fed purchases $3 Million of securities from a non-bank dealer that banks with Other Bank. The Fed adds $3 Million to its Reserves account liabilities to Other Bank. Other Bank records the addition of $3 Million to its Reserves asset account; then it credits the dealers account for $3 Million.

Two things distinguish this transaction from that with the bank:

1. Because the deposits account liabilities of Other Bank increase by $3 Million, the quantity of money also increases by $3 Million.
2. Because Other Bank must maintain a 1% reserve on that new $3 Million deposit liability its excess reserves increase by only $2,970,000 instead of $3 Million. ($3 Million increase in actual reserves less 1% [or $30,000] required reserves = $2,970,000 increase in actual reserves)