The Fed can t directly control M1 or M2 or any of the other money aggregates. The Fed can only directly affect the money base. To explain bank reserves, first I have to remind you what banks do. They take your deposits, in checking and saving accounts, and put them together with those of their other customers and lend them out. This is called financial intermediation .
Banks do it, as do other financial institutions, but let s stay with banks for now.
So, every month you put your paycheck in the bank, and over the month you draw the funds out. Lots of people do this, and some people put money in savings accounts and leave it with the bank. The bank pays them interest on the money, and they generally leave it there, taking it out only if they want to take a big vacation or buy something. So generally, the bank has a lot of deposits. So, we don t all make claims on the bank for our funds on the same day.