According to an article in the Wall Street

Journal,

Congressman Jeb Hensarling of Texas, who was at the time chair of the House Financial Services Committee, criticized the Fed for paying banks an interest rate on their reserves that was higher than the federal funds rate.

Briefly explain why the federal funds rate is typically lower than the interest rate the Fed pays banks on reserves.

If the interest rate on reserves moves above the federal funds rate, then ________.

A.

banks would prefer to sit on their excess reserves instead of lending to other banks in the federal funds market

B.

banks would become unstable from lending out too much of their excess reserves in the federal funds market

C.

banks would prefer to borrow from other banks instead of borrowing from the Fed

D.

the Fed would no longer be able to use the interest rate it pays on reserves to manage the federal funds rate