One thing the Fed could do, as Alan Blinder pointed out recently in the WSJ, is to eliminate the .25% the Fed pays the banks for keeping their excess reserves on deposit with the Fed. Even beyond that, the Fed could CHARGE the banks for keeping the excess reserves on deposit with the Fed.
That would be an incentive to the banks to do something else with the excess reserves.
Who knows, they might even loosen up their lending?
......but, with the economy we have, there isn't much demand for loans. Most businesses don't want to do much until the FISCAL CLIFF problem is addressed -- and not by some mickey-mouse several month extension of all the subject tax policies that has been proposed by certain politicians until some COMPREHENSIVE TAX REFORMS can be conjured up.
The minute the term "COMPREHENSIVE" is heard, watch out. The politicos are set to end up with a camel, when instead they were attempting to create a horse.
VS