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I'm going to concur with the "two issues" above. Cleaning out the smaller of the two holes in the master cylinder can be difficult. If there is congealed brake fluid in the reservoir it can leave a speck which gets sucked in and blocks this critical hole. Block it and the return of fluid when brake is released is stopped (or slowed). Easy way to check is to look in reservoir when lever is squeezed... do you see fluid movement from the initial piston travel before the hole is blocked? if not you have an issue there as an aside, I had a bike come to me with brake lever slightly pushed in that blocked this return hole, thus brakes never really 'let go'

When cleaning the bore for the caliper piston, great care must be taken with these older bikes to remove ALL the buildup of hardened brake fluid on the inner surfaces... including the inner cut where the seal sits. the worst is usually found above/outside the seal where leaking fluid hits air. This is accomplished with emery cloth, dremel rotary brushes, right angle picks, scotchbrite pads, etc. Try not to score the inner(below the seal) surfaces. The final test of dropping the brake piston back into the caliper bore should result in smooth travel of the piston....not impeded by crumbs of hydraulic fluid scum. Chances are if it won't smoothly push in and easily pull back out (with seal removed) you need to continue cleaning. Cleaning the recess for the seal just means there is no tight spot, the pressure applied to piston wall is symmetric around the circumference. If it looks clean but still hangs on the piston, put hydraulic (brake) fluid on piston during testing. If it still hangs, CLEAN IT AGAIN you missed something

A proper working hydraulic system will seal tightly around caliper piston when lever is squeezed, then release pressure and create a small vacuum to help retract the piston. Thus, when lever is released the piston will be a few thousandths off it's surface and no squealing or scratching noises will occur. Easy to have happen in new stuff, but when seals let brake fluid leak for 20 to 40 years, the cement buildup will invariably cause problems TS
In fact, the piston retraction is primarily made by the square piston seal. Hydraulic pressure moves the piston forward and deforms the seal section to a parallelogram shape. When the pressure is released the seal wants to get back to a square section and pulls back the piston a few thousandth.
 
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