The payment increases the reserves of the commercial banks by the amount of the purchase. The results of purchasing from the public are similar; the Federal Reserve pays a particular person or entity for a portion of its holdings with a Federal Reserve check. The entity deposits the check into its commercial bank...
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The entity deposits the check into its commercial bank. The commercial bank then sends that amount to the Federal Reserve to increase its reserves (McConnell-Brue, 2004, p. 270). The result is the same whether the Federal Reserve buys from the public or commercial banks: commercial banks have more on reserve with the Federal Reserve, thus are able to lend more thus more money is available for circulation...
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