119-S-2113 Corporate Impact Analysis

Proposal and Scope

Prohibits Federal Reserve Banks from paying earnings on balances maintained by or on behalf of a depository institution (i.e., ends IORB). Status: introduced June 18, 2025; referred to Senate Banking; one listed cosponsor as of July 21, 2025. [7]Congress.gov — Text: S.2113 — End the Fed’s Big Bank Bailout Act (Introduced)[1]Congress.gov — All Info: S.2113 — End the Fed’s Big Bank Bailout Act (Status, C…

• Text: replaces FRA §19(b)(12) with a prohibition on earnings on such balances. [7]Congress.gov — Text: S.2113 — End the Fed’s Big Bank Bailout Act (Introduced)
• Status detail: “Introduced” with referral to Senate Banking; cosponsor Sen. Sanders [I‑VT] added July 21, 2025. [1]Congress.gov — All Info: S.2113 — End the Fed’s Big Bank Bailout Act (Status, C…

Economic Effects

Key channels: bank earnings and pricing; Treasury/Fed cash flows; monetary policy implementation; market plumbing; competitive positioning across institutions.

1. Bank earnings impact: Removing IORB eliminates a low‑risk yield on reserve balances. With reserves around $3.0T in late September 2025 and IORB at 3.65% as of December 11, 2025, foregone gross income is on the order of $100B annually at current conditions; effects scale with rates and the path of reserves. U.S.‑chartered banks hold ~57% of reserves on average (FBO branches ~38%), implying material but uneven earnings erosion. [8]Reuters — Foreign bank cash decline lifts fed funds rate; total reserves about…[3]Federal Reserve Board — Implementation Note — IORB set to 3.65% (effective Dec…[4]NY Fed Liberty Street Economics — Reserves and Where to Find Them
2. Monetary policy implementation: IORB is the Fed’s principal tool for controlling the fed funds rate in the ample‑reserves “floor” framework; removing it forces heavier reliance on the ON RRP facility and/or more frequent open‑market/repo operations, or a reversion toward a corridor regime—each with distinct trade‑offs. [2]Federal Reserve Board — Federal Reserve Board — Interest on Reserve Balances (I…[6]Federal Reserve Board — FEDS Notes — Implementing Monetary Policy in an Ample‑R…[9]Federal Reserve Bank of New York — NY Fed — Repo and Reverse Repo Agreements (O…[10]IMF — IMF Working Paper — The ECB’s Future Operational Framework: Corridor or F…
3. Treasury/Fed cash flows: Ending IORB reduces the Fed’s interest expense. Given recent losses (net −$114.3B in 2023; −$77.5B in 2024) driven largely by interest on reserves and RRPs, eliminating IORB would accelerate the shrinkage of the Fed’s deferred asset and could bring forward the resumption of remittances to Treasury (timing depends on rates/balance sheet). [5]Reuters — Fed posts record loss of $114.3B in 2023; interest on reserves $176.8…[11]Reuters — Fed reports smaller loss on operations in 2024; deferred asset details[12]Web search · turn 4 #0
4. Funding markets and competition: Without IORB, banks may quote lower deposit rates (to protect NIM) or reprice credit, while nonbanks and MMFs could gain share as ON RRP/private repo remain alternatives; MMF ON RRP use has fallen as private repo/bills became more attractive but could revive if spreads compress. [13]Financial Times — High‑rate era handed ~$1T windfall to U.S. banks via low depo…[14]U.S. Office of Financial Research — OFR Blog — MMF Monitor: Reduced ON RRP Use;…[15]Federal Reserve Board — Federal Reserve Board — ON RRP Facility (role and mecha…
5. Size/composition effects: Evidence suggests reserve holdings are concentrated in larger institutions in level terms but are more evenly distributed when scaled by assets; smaller banks can hold relatively more reserves per asset, implying proportionally larger earnings headwinds for some community/regional institutions. [16]Federal Reserve Bank of Richmond — Richmond Fed Economic Brief — Reserve Concen…
6. Market plumbing risk: Episodes show fed funds can deviate when reserve distributions shift (e.g., quarter‑end declines in FBO cash lifting the effective rate). Removing IORB may heighten such sensitivity, requiring more active Desk operations. [8]Reuters — Foreign bank cash decline lifts fed funds rate; total reserves about…

Social Effects

Primary channels are indirect—through bank pricing, credit supply, and payment-system dynamics; no direct consumer transfers are specified in the bill.

• Depositors: Banks have historically passed through policy‑rate changes to depositors only partially; removing IORB reduces a revenue source that could be offset via lower deposit rates and/or higher fees, particularly at institutions with large reserve ratios. [13]Financial Times — High‑rate era handed ~$1T windfall to U.S. banks via low depo…
• Borrowers/credit: Research finds mixed effects of IOER on lending; some studies associate higher IOER with lower loan allocations, while other Federal Reserve research shows large reserves do not mechanically expand credit. Eliminating IORB could incrementally support credit supply at the margin—or prompt offsetting repricing to preserve margins—net effect uncertain. [17]Rice University’s Baker Institute for Public Policy — Baker Institute — Bank Le…[18]Elsevier — Journal of International Financial Markets… (2025) — IOER and lendin…[19]Federal Reserve Bank of New York — NY Fed Staff Report — Bank Lending in Times…
• Communities/smaller banks: If smaller banks hold more reserves relative to assets, the earnings hit per dollar of assets may be larger, potentially tightening local credit or raising service fees in certain markets. [16]Federal Reserve Bank of Richmond — Richmond Fed Economic Brief — Reserve Concen…
• Payments reliability: With less incentive to hold idle balances, some banks may operate with thinner buffers intraday; the Fed’s daylight‑overdraft framework mitigates risk, but usage/monitoring could rise modestly from currently low levels under ample reserves. [20]Federal Reserve Board — Federal Reserve — Payment System & Reserve Bank Oversig…

Environmental Effects

No direct environmental provisions or mandates.

• Direct impacts: None specified; the bill amends the Federal Reserve Act solely with respect to remunerating reserve balances. [7]Congress.gov — Text: S.2113 — End the Fed’s Big Bank Bailout Act (Introduced)
• Indirect impacts: Any macro‑level changes to credit conditions could have second‑order effects on investment mix, but no robust, attributable environmental effect is documented in the literature specific to IORB removal.

Temporal Analysis

Short‑run operational transition versus longer‑run regime change risks.

1. Immediate (0–12 months post‑enactment): Fed would set IORB to 0%; banks lose risk‑free income stream; the Desk may lean more on ON RRP and/or reserve‑management purchases/operations to keep the fed funds rate within target amid year‑end/quarter‑end frictions. [3]Federal Reserve Board — Implementation Note — IORB set to 3.65% (effective Dec…[9]Federal Reserve Bank of New York — NY Fed — Repo and Reverse Repo Agreements (O…[21]News result · turn 11 #13
2. Near term (1–2 years): Higher sensitivity of overnight rates to reserve distribution; examples in 2025 show fed funds moving when FBO cash shifts. More active operations likely until a new steady‑state emerges. [8]Reuters — Foreign bank cash decline lifts fed funds rate; total reserves about…
3. Longer term (2+ years): Absent IORB, the operating regime may migrate toward a corridor or hybrid system, trading greater rate‑control precision for smaller central‑bank balance sheets but higher need for frequent operations; policy choice determines market structure and banks’ liquidity management costs. [10]IMF — IMF Working Paper — The ECB’s Future Operational Framework: Corridor or F…[22]Web search · turn 5 #4

Unintended Consequences and Secondary Effects

Risks documented in credible sources and likely second‑order outcomes.

• Leakage to nonbanks: Removing IORB could shift the effective “floor” to ON RRP, transferring risk‑free earnings from banks to MMFs/GSEs and potentially enlarging nonbank intermediation if private repo/T‑bill spreads narrow. [15]Federal Reserve Board — Federal Reserve Board — ON RRP Facility (role and mecha…[9]Federal Reserve Bank of New York — NY Fed — Repo and Reverse Repo Agreements (O…
• Rate‑control complexity: Without IORB, the effective floor weakens for banks, increasing reliance on ON RRP and the Standing Repo Facility; the Desk has noted the need for such supplementary tools in a floor regime even with IORB. [23]Web search · turn 5 #2
• Payments/liquidity frictions: Thinner reserve cushions may raise daylight‑overdraft usage from currently low levels, adding compliance/monitoring overhead under the PSR policy. [20]Federal Reserve Board — Federal Reserve — Payment System & Reserve Bank Oversig…
• Regulatory substitution: Because reserves count as Level‑1 HQLA under the LCR, banks may substitute toward Treasuries to preserve HQLA while avoiding non‑earning assets; aggregate reserves, however, are set by the Fed’s balance sheet, so system‑wide substitution depends on Desk operations. [24]LII / Cornell Law School — 12 CFR §249.20 — HQLA criteria (reserves as Level‑1…
• Policy spillovers to remittances: Lower Fed interest expense could reduce the deferred asset more quickly, potentially restoring Treasury remittances sooner, but the path is sensitive to policy rates and liability mix. [11]Reuters — Fed reports smaller loss on operations in 2024; deferred asset details[12]Web search · turn 4 #0

Assessment (Analytical Summary)

Netting earnings, implementation stability, and competitive dynamics against potential public‑sector savings:

• For regulated institutions, the proposal is likely Unfavorable: it removes a material, low‑risk income source, raises liquidity‑management costs, and increases overnight‑rate control complexity, with disproportionate impacts where reserves/asset ratios are higher. [3]Federal Reserve Board — Implementation Note — IORB set to 3.65% (effective Dec…[8]Reuters — Foreign bank cash decline lifts fed funds rate; total reserves about…[16]Federal Reserve Bank of Richmond — Richmond Fed Economic Brief — Reserve Concen…
• For the public sector, effects may be Favorable to Neutral: Fed interest expense falls, accelerating the reduction of the deferred asset and potentially advancing Treasury remittances, conditional on rates/balance sheet policy. [5]Reuters — Fed posts record loss of $114.3B in 2023; interest on reserves $176.8…[11]Reuters — Fed reports smaller loss on operations in 2024; deferred asset details
• Overall stance (persona‑based, non‑advocacy): Unfavorable.

Sourcing Notes

We rely on primary texts (Congress.gov; Federal Reserve publications, rules, and minutes), peer‑reviewed or central‑bank research, and major wire services for data series and recent developments.

• Bill text/status: Congress.gov. [7]Congress.gov — Text: S.2113 — End the Fed’s Big Bank Bailout Act (Introduced)[1]Congress.gov — All Info: S.2113 — End the Fed’s Big Bank Bailout Act (Status, C…
• Fed policy and tools: Board FAQs/implementation notes; NY Fed Desk materials. [2]Federal Reserve Board — Federal Reserve Board — Interest on Reserve Balances (I…[3]Federal Reserve Board — Implementation Note — IORB set to 3.65% (effective Dec…[9]Federal Reserve Bank of New York — NY Fed — Repo and Reverse Repo Agreements (O…
• Operating frameworks: FEDS Notes; IMF analysis; RBA/BIS taxonomy. [6]Federal Reserve Board — FEDS Notes — Implementing Monetary Policy in an Ample‑R…[10]IMF — IMF Working Paper — The ECB’s Future Operational Framework: Corridor or F…[25]Web search · turn 5 #5
• Financial impact data: Reuters coverage of audited Fed results. [5]Reuters — Fed posts record loss of $114.3B in 2023; interest on reserves $176.8…[11]Reuters — Fed reports smaller loss on operations in 2024; deferred asset details
• Reserves distribution/dynamics: Liberty Street Economics; Reuters on quarter‑end effects. [4]NY Fed Liberty Street Economics — Reserves and Where to Find Them[8]Reuters — Foreign bank cash decline lifts fed funds rate; total reserves about…
• MMF/ON RRP trends: OFR blog; Federal Reserve ON RRP materials. [14]U.S. Office of Financial Research — OFR Blog — MMF Monitor: Reduced ON RRP Use;…[15]Federal Reserve Board — Federal Reserve Board — ON RRP Facility (role and mecha…
• Liquidity regulation (LCR/HQLA): 12 CFR Part 249. [24]LII / Cornell Law School — 12 CFR §249.20 — HQLA criteria (reserves as Level‑1…