The Fed can induce banks to increase their reserve holdings by:

Question

Quizplus · Accepted Answer

Increasing the interest on reserves encourages banks to hold more reserves, as they earn a higher return on those reserves. Other options, such as increasing the discount rate or selling securities in the open market, may have other effects on the economy but do not directly incentivize banks to increase their reserve holdings. Reducing the required reserve ratio would have the same effect in theory, but it is a less precise tool for controlling reserves as it would impact all banks equally regardless of their individual reserve holdings.

The Fed Can Induce Banks to Increase Their Reserve Holdings