Bank reserves and m1 will decrease. when the public decreases checking account balances to buy treasury securities.
Bank is a type of financial institution that lends money while taking deposits from the public and creates demand deposits. Banks may engage in lending activities directly or indirectly through capital markets. Because banks are essential to a country's financial stability and economic health, they are subject to tight regulation in most countries.
Most countries have institutionalized proportional reserve banking, where banks hold liquid assets that are only partially equivalent to their current obligations. Banks are often subject to minimum capital requirements based on the international capital rule set, the Basel Agreement, in addition to additional restrictions to maintain liquidity.
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