> Similarly, when I deposit $10,000 into a bank (be it a savings account, or money market account), the Bank writes down an IOU saying it owes me $10,000. The b

> Similarly, when I deposit $10,000 into a bank (be it a savings account, or money market account), the Bank writes down an IOU saying it owes me $10,000. The bank then sends the money to the market (and worst-case, to the Fed Overnight loans), and lends the money out. Incorrect! My understanding is it would be illegal for them to give away your deposits. That includes the Reverse-Repo market (RRP), which is the source of the overnight rate you referring to. The RRP is a contract, not a transfer. Factional-reserve banking means they don't loan out customer's deposits. Also, you are confused about the users of RRP. It is overwhelmingly money-market funds, NOT checking/saving accounts. This would include Vanguard, Fidelity, Schwab, etc. which are not banks. From:https://fedguy.com/the-on-rrp-will-never-be-a-floor/ https://fedguy.com/the-on-rrp-will-never-be-a-floor/ "In practice, the vast majority of ON RRP usage is done by MMFs, who have $4.5 trillion in assets. That enormous pool of capital is the mechanism through which Fed policy is transmitted in the money markets." ON RRP = Overnight Reverse-Repo MMF = Money-Market Fund And it is never "spent" by the fed. It is held as a liability on their balance sheet. The reason you see such a high RRP now is due to a shortage of low duration treasuries. They want the RRP to be high in case there is a run on MMFs like in 2008.