ICBA tells Senate panel that IORB is vital to financial system 

Ahead of a hearing on the Federal Reserve’s policy of paying interest on reserve balances (IORB) to financial institutions that maintain balances at the Fed, ICBA told senators that the IORB is important to community banks and the financial system.  

Details: In a statement for the record for Thursday’s Senate Homeland Security and Governmental Affairs Committee hearing on the IORB, ICBA: 

• Said it hopes the hearing will dispel misunderstandings concerning IORB, including the mistaken argument that IORB costs taxpayers and that its elimination would save taxpayer dollars. 

• Noted IORB’s importance to effective monetary policy and to community banks and the broader financial system. 

• Said disruption and interest rate spikes would result if the program was eliminated. 

Recent Vote: The Senate in October voted against adding an ICBA-opposed ban on interest on reserves to the National Defense Authorization Act. Senators voted 83-14 against an amendment sponsored by Sen. Rand Paul (R-Ky.) that would have banned the Fed from paying interest on reserves and the overnight reverse repo program.  

ICBA View: ICBA and other groups recently released a position paper that says eliminating interest on reserves would likely cost the government money and significantly harm the economy by pushing up long-term interest rates, boosting the federal deficit, and curtailing the flow of credit to households and businesses.