Banking and Finance Law Daily Fed decreases reserve requirements of depository institutions
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Thursday, May 9, 2019

Fed decreases reserve requirements of depository institutions

By Stephanie K. Mann, J.D.

Fed revises the rate of interest paid on balances maintained to satisfy reserve balance requirements and the rate of interest paid on excess balances maintained at FRBanks.

The Federal Reserve Board is amending Regulation D—Reserve Requirements of Depository Institutions, to revise the rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR) and the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions. Under the amendments, IORR is 2.35 percent and IOER is 2.35 percent, a 0.05 percentage-point decrease from their prior levels. According to the final rule, the amendments are intended to enhance the role of such rates of interest in maintaining the federal funds rate into the target range established by the Federal Open Market Committee. The final rule will be effective May 10, 2019.

A May 1, 2019, FOMC statement indicated that the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. A May 2, 2019, Fed Implementation Note stated that the Fed voted unanimously to set the interest rate paid on required and excess reserve balances at 2.35 percent. According to the notice, setting the interest rate paid on required and excess reserve balances 15 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC's target range.

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