FRB Lowers Certain Reserve Requirements and Proposes Simplifying Interest Rate Formula

The Federal Reserve Board ("FRB") finalized an amendment to Regulation D to "lower reserve requirement ratios on transaction accounts maintained at depository institutions to zero percent."

The FRB also proposed amendments that would (i) create a new single "interest on reserve balances" rate and (ii) simplify the formula for payment of interest on balances. The FRB explained that the adopted rule amendment eliminated the need to distinguish between institutions that maintain balances to satisfy reserve requirements. The FRB proposed to replace the current "interest on required reserves" ("IORR") rate of 0.10 percent and "interest on excess reserves" ("IOER") rate of 0.10 percent, with a single "interest on reserve balances" ("IORB") rate.

Additionally, the FRB proposed to simplify the current definition of "excess balances" (i.e., balances maintained in "excess balance accounts") to "balances" and to apply the proposed IORB rate to this balance.

The rule amendment is effective on the date of its publication in the Federal Register. Comments on the proposed amendments must be submitted on or before 60 days after the amendments' publication in the Federal Register.