One effect of the financial crisis was to change how the Fed conducts monetary policy. This could be long-lasting and important.
Prior to the crisis, the Federal Open Market Committee (FOMC) set a target for the so-called federal funds rate, the interest rate at which depository institutions lend balances to each other overnight. The New York Fed would then conduct open market operations – buying and selling securities – in order to nudge that rate towards the target. It did this by affecting the supply of banks’ reserve balances at the Fed, which go up when they sell securities to the Fed and down when they buy them. Read more »