In his explanation of how Fed and bank activities affect the money supply, Mishkin notes that banks are assumed to lend all of their excess reserves. If they do not lend all of these funds and retain excess reserves, then the actual impact of Fed attempts to alter the money supply will be less effective than desired. For example, the Fed attempted to boost the money supply in order to support the economy during the 2007-2009 recession, but banks retained some of these excess reserves and bank lending to generate economic activity was limited.

Traditionally, the Fed only deals directly with banks (and some large companies in special circumstances), but some economists have proposed that individuals should have online bank accounts with the Fed. This would allow the Fed to more directly influence the money supply by working with individuals as well as banks.

Suppose the Fed does not offer loans to individuals so they don't compete with banks on these services, but the Fed does allow individuals to open online accounts that pay interest and can be accessed with checks or electronic transfers. Would you be interested in a Fed account? Would you feel comfortable working with an online-only account through an institution that does not have local branches? Do you see any problems with this system?