With new reserves, banks can extend credit and expand the money supply. A sale of U.S. government securities by the Trading Desk decreases the amount of nonborrowed reserves, increases the amount of borrowed reserves, and raises the fed funds rate. To slow down the economy, the Fed sells securities. When the Federal Reserve sells securities, it reduces bank reserves. The banks have less nonborrowed reserves.
Total reserves fall.
With fewer reserves, banks are forced to either recall loans or refuse additional loans, contracting credit and the money supply. In 1955, the FOMC authorized the New York Reserve Bank to deal in prime bankers' acceptances for its own account. In 1977, the FOMC modified this authorization to include only repurchase agreements under ordinary circumstances. The policy was changed because the acceptance market had matured and become efficient and no longer required support by the Federal Reserve. Federal agency obligations .