Regulation D: Reserve Requirements of Depository Institutions
Key claim: The Federal Reserve raised the interest it pays banks on reserve balances at Fed banks to 3.90%, up 0.25 percentage points, to help keep the federal funds rate inside the FOMC’s target range.
Abstract
(Rule · Federal Reserve System) The Board of Governors of the Federal Reserve System (“Board”) has adopted final amendments to its Regulation D to revise the rate of interest paid on balances (“IORB”) maintained at Federal Reserve Banks by or on behalf of eligible institutions. The final amendments specify that IORB is 3.90 percent, a 0.25 percentage point increase from its prior level. The amendment is intended to enhance the role of IORB in maintaining the federal funds rate in the target range established by the Federal Open Market Committee (“FOMC” or “Committee”).
Why this matters
IORB is the Fed’s primary tool for steering the federal funds rate inside the FOMC’s target band, so a quarter-point adjustment flows through to bank funding costs, money-market yields, and the compensation banks earn on reserves parked at the Fed. The move is procedural rather than structural, but it reinforces why the pending Regulation D ‘Payment Account’ proposal — which would exclude certain balances from IORB entirely — matters for narrow-purpose entities seeking Fed master accounts.