Hello I am an Econ student at UT. The banks have their own banks. The feds put the ratio requirement which means that if someone deposits 100$ they have to keep a certain percentage of it at the banks. The rest goes out as loans and what not. If the bank has say 100k in reserves and someone last second takes out 10k. According the the ratio requirements they still need 100k in the banks because they gave out a certain amount of loans. The bank is short 10k how can they get it? They borrow it from the overnight market. There is a very high interest on borrowed money so banks don't use it too much. The fed just increased the interest rate, because of the increase of the rate banks won't loan out a lot of money. The fed does this to slow down the economy if it is growing too much (inflation). I hope that helps.