Banks may hold the reserves for their customers' deposits as

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Banks may hold the reserves for their customers' deposits as either cash in their vaults or their deposits at the Fed. The choice depends on the bank's preference and need for liquidity. Holding cash in vaults is more costly and less efficient, while holding deposits at the Fed earns interest and is considered a more secure way of holding reserves. Therefore, banks usually choose to hold a combination of both cash and deposits at the Fed. Federal Reserve Notes are issued by the Fed and used as currency by banks and the public, but they are not necessarily the reserves held by banks.

Banks May Hold the Reserves for Their Customers' Deposits as