Fed publishes cut in interest paid on Reg D reserves

Interest rates paid to banks are reduced by 25 basis points for reserve balance requirements and excess balances under a final rule by the Federal Reserve, according to a notice filed with the Federal Register Friday.

Under the final rule, interest paid on balances maintained to satisfy reserve balance requirements (IORR) and the rate of interest paid on excess balances (IOER) maintained by financial institutions at Federal Reserve Banks falls to 2.1% for both areas.

According to the Fed, the changes are intended to “enhance the role of such rates of interest in moving the Federal Funds rate into the target range” set by the Fed’s rate-setting Federal Open Market Committee (FOMC).

The rate changes, according to the notice, were applicable Aug. 1, the Fed notice states.

“This 0.25 percentage point decrease in each rate was associated with a decrease in the target range for the federal funds rate, from a target range of 2-1/4 to 2-1/2 percent to a target range of 2 to 2-1/4 percent, announced by the FOMC on July 31, 2019, with an effective date of August 1, 2019,” the notice states.

Regulation D: Reserve Requirements of Depository Institutions