They lose money when they earn 3% on their bonds while they pay banks 5% on their reserves. They also lose because those bonds are worth less.
Yes but it’s just pretend book keeping with monopoly money.
So, tell me, what are the dire consequences of such an epic “loss”?
The depositors (commercial banks) sure ain’t losing sleep over it? They love it, they keep getting 5.5% risk free on the huge reserves they have at the fed.