Interest on Excess Reserves
Abbreviation
IOER
Interest on Excess Reserves (IOER) is interest that the Federal Reserve pays to banks for reserves they have in excess of their required levels
- Became important after QE programs (before there were few excess reserves)
- Fed Chair Ben Bernanke asked congress to approve the Fed's authority to pay interest on excess reserves
- Previously funds held at the fed did not earn any interest
- Has helped keep money from flowing into the system
IOER Criticisms
- Gave the banks free interest income during periods of QE (when excess reserves were high)
- QE is what creatd the excess reverses, so this is basically a "give away" to banks for free