Atlas Macro

Central banks

IORB (Interest on Reserve Balances)

The interest rate the Federal Reserve pays banks on the reserves they hold at the Fed. In July 2021 it replaced the separate rates on required and excess reserves (IOER).

Key points

  • The Fed's main tool for keeping the fed funds rate inside its target range.
  • Banks have little reason to lend reserves to each other for less than the IORB rate.
  • Set inside the target range and moved whenever the range moves.

Example

When the target range was 5.25-5.50%, the Fed paid 5.40% on reserves.

In history

Interest on reserves was introduced in October 2008. As QE made reserves plentiful, it replaced day-to-day bond trading as the main way the Fed steers short-term rates.

Related terms