The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%.
So, the Fed pays banks interest on money lent to the Fed from the banks.
The higher rate would entice banks to tie up money they otherwise might lend to customers or other banks. The Fed expects such a maneuver to pull up other key short-term rates, including the federal-funds rate at which banks lend to each other overnight—long the main tool for steering the economy.
The keyword here is entice. Note that banks are not really lending to consumer and business. So, the Federal Reserve is giving more financial incentives for banks to collect interest and thus tighten consumer and business credit further.
From Henry Blodget, at Business Insider:
The banks are, however, lending to the Federal government, which needs to fund record deficits by borrowing more than $1 trillion a year. Banks are also collecting interest--currently 0.25% a year--on the $1 trillion or so of "excess reserves" (see below) that they aren't lending to anyone.
Here is where we have yet another free gift to banks:
Banks can borrow from the government at artificially cheap rates and then lend the money back to the Federal government at higher rates, pocketing the difference.
Are you f%*$ing kidding me? If this wasn't real I would swear the government lending banks money so the Fed can borrow that same money from the banks, at higher interest rates, and banks then pocket the interest profits on those same funds borrowed from the government, now lent to the Federal Reserve ... is a quote from the Daily Show.
I suggest reading both articles linked and if you were on the fence about Bernanke, I suspect this latest plan will throw you to the ground.