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Until the quantitative easing (QE) of 2008 — the creation of additional central bank deposits exchanged for treasury bonds or mortgage-backed securities on an unprecedented scale after the global financial crisis — the cash reserves of private deposit-taking banks in the US would seldom exceed the minimal cash they would be required to hold by regulation.

The banks would often satisfy their cash reserve requirement by borrowing from other banks or, in the last resort, borrowing from the US Federal Reserve (Fed). This gave the Fed full control over short-term interest rates, and it would supply or remove cash from the banks by what are known as open market operations, to reinforce its interest rate settings. The cash reserves of US private banks now stands at $4.2-trillion. They grew by $2.7-trillion between 2008 and 2014, before declining...

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