##s averaged $ 20 billion and excess reserves – balances in excess of those required to satisfy reserve balance requirements – averaged about $ 1. 5 billion. bis central bankers ’ speeches policy directive under this implementation framework. the effective federal funds rate – the average rate prevailing in the brokered federal funds market each day – routinely hit the fomc ’ s target rate, generating a high degree of confidence among market participants in the desk ’ s ability to implement policy. this operating framework changed as the financial crisis deepened. by december 2008, the fomc had lowered its target for the federal funds rate from a point target of 5¼ percent in mid - 2007 to a target range of zero to ¼ percent. with the federal funds rate and other shortterm interest rates effectively at the zero lower bound, the fomc ’ s operating objective for omos was expanded to include adjustments in the size and composition of the federal reserve ’ s securities portfolio. in particular, the fomc initiated large - scale asset purchases ( lsaps ) of agency mortgage - backed securities ( mbs ), agency debt, and later longer - term treasury securities, in order to put downward pressure on longer - term interest rates, support mortgage markets, and help make broader financial conditions more accommodative. the expansion of the domestic securities portfolio that resulted from lsaps vastly increased the supply of reserve balances in the system ( figure 1 ). 4 importantly, in october 2008, the fed was granted authority to pay interest on depository institutions ’ reserve balances. 5 in an environment of elevated reserve balances that resulted from the fed ’ s asset purchases, the payment of interest on excess reserves ( ioer ) – currently at a rate of ¼ percent – has kept the overnight federal funds rate within its target range ( figure 2 ). 6 although the fomc continues to direct the desk to undertake omos as necessary to maintain conditions in reserve markets consistent with federal funds trading in a range from zero to ¼ percent, the desk has not needed to conduct omos to manage the supply of reserves since december 2008. instead, omos have focused on directives to adjust the size and composition of the soma portfolio. since late 2008, the fomc has directed the desk to carry out three large - scale asset purchase programs and several other portfolio - oriented initiatives, such as the maturity extension program ( mep ) and changes in reinvestment policies ( figure 3 ). under the me

size limit is achieved – with all bids below this rate awarded in full and all bids at this rate awarded on a pro rata basis. the stopout rate is determined by evaluating all bids in ascending order by submitted rate up to the point at which the total quantity of offers equals the overall size limit. 12 the federal reserve will be closely analyzing the results of the on rrp exercise conducted under these new testing parameters in order to further its understanding of how an on rrp facility might best be structured during the initial stages of the normalization process. in addition, the federal reserve board has been testing a facility through which it offers term deposits to credentialed depository institutions. term deposit facility ( tdf ) transactions could be used to temporarily reduce the quantity of reserve balances. an eight - week series of tests this summer explored how demand for term deposits responds to variations in the maximum award limits and rates. higher offered rates attracted greater use, both in terms of the number of participants and the total dollar volume demanded. demand for the tdf may have been tempered somewhat by the instruments ’ lack of an early - withdrawal feature, and thus the inability to consider them as high - quality liquid assets for regulatory purposes. the next round of tdf testing, which will commence in october, will incorporate an early withdrawal feature, as well as gradually increase the maximum award amount and rate. a broader perspective on normalization i ’ ve discussed how the fomc ’ s eventual approach to removing monetary policy accommodation reflects developments in the federal reserve ’ s balance sheet since the onset of the financial crisis. as noted earlier, the relatively long maturity structure of the soma portfolio means that the level of reserve balances in the u. s. banking system will decline only slowly through passive means, absent any asset sales. other central banks that have undertaken unconventional measures also face ( or will eventually face ) similar challenges when they deem it appropriate to begin their own policy normalizations. for more details about on rrp operations, please see faqs on the new york fed ’ s website. bis central bankers ’ speeches the bank of england ( boe ) and the bank of japan are two relevant examples that come immediately to mind. the boe ’ s asset purchase facility, through which its monetary policy committee ( mpc ) purchased £375 billion of longer - term assets between 2009 and 2012, was quite comparable in purpose and design to the fed ’ s lsap programs. moreover, since march