The Federal
Reserve influences the economy through the market for balances that depository
institutions maintain in their accounts at Federal Reserve Banks. Depository
institutions make and receive payments on behalf of their customers or
themselves in these accounts. The end of day balances in these accounts are used
to meet reserve and other balance requirements. If a depository institution
anticipates that it will end the day with a larger balance than it needs, it can
reduce that balance in several ways, depending on how long it expects the
surplus to persist. For example, if it expects the surplus to be temporary, the
institution can lend excess balances in financing markets, such as the market
for repurchase agreements or the market for federal funds.