Fed Payment of Interest on Bank Reserves
Date:
October 6, 2008
Who:
Fed
Policy Area:
Financial Sector Policy
Economic Target:
Depository Institutions
Action Type:
Regulatory Change Federal Reserve will pay interest on depository institutions' required and excess cash reserves. Program originally slated to begin in October of 2011 was moved up to October 2008 because of the financial crisis. Objective is to compensate depository institutions for lost income they could derive by investing reserve funds elsewhere.
Source:
Notes:
Cost of paying interest is unknown. Activities of the Federal Reserve are not directly recorded in the federal budget. However, each year the Federal Reserve remits a portion of its earnings to the general treasury. This remittance is generally in the range of $20-$30 billion per year, but the CBO estimates that the Fed's earnings will be lower by approximately $90 billion over the next ten years.