During the height of the financial crisis in September 2008, the Fed injected large amounts of reserves into banks, and in the next month, it started paying interest to banks on these reserves. Prior to this time, banks earned no interest on either required or excess reserves. This created an incentive for banks to keep minimal excess reserves and lend any extra funds they had. However, once banks began to earn interest on excess reserves, they did not have to lend their funds out to earn interest. If lending opportunities were not very attractive, the bank could safely keep their funds on hand.
As Figure indicates, banks have responded to the new incentives. Prior to the change in law, banks held few excess reserves. After the change in the law, excess reserves increased sharply and total reserves now far exceed required reserves. In the long run, the Federal Reserve will need to make sure that banks do not lend out too many reserves or the result will be higherinflation.

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1400000 1 200000 Total Reserves-> 800000 600000 400000 Required Reserves 200000 2000 2002 2004 2000 2008 caar