CXO

The Effect Of Interest On Reserves On Monetary Policy

Date Added: Dec 2009
Format: PDF

On October 13, 2006, the Federal Reserve was granted authority by Congress to begin paying banks interest on the reserves they hold (IOR), with implementation scheduled for October 1, 2011. The Emergency Economic Stabilization Act of 2008 accelerated implementation, at the Fed's request, to October 1, 2008. Under the authority granted by the Act, the Fed amended its Regulation D (Reserve Requirements of Depository Institutions) to mandate that regional Federal Reserve Banks pay interest to depository institutions on both their required and excess reserves.