Interest on Reserve Balances (IORB)

What Is IORB?

Interest on Reserve Balances (IORB) is the rate the Federal Reserve pays commercial banks on the reserve balances they hold at the Fed. It is one of the Fed's two administered rates (the other being the Overnight Reverse Repo rate, or ON RRP rate). Together, IORB and ON RRP rate form the floor under the fed funds and repo markets.

IORB replaced the older terminology IOER (Interest on Excess Reserves) in 2021, reflecting the elimination of legal distinction between required and excess reserves. The rate mechanism is unchanged.

Why It Matters for Markets

IORB is the primary tool the Fed uses to keep EFFR within the target range. By paying banks a risk-free rate on their reserves, the Fed creates an opportunity cost for lending in the fed funds market — banks would rather earn IORB than lend at lower rates. This pulls fed funds market rates up toward the IORB level.

In the abundant-reserves regime that has prevailed since 2008, IORB is the de facto policy rate. Changes to IORB at FOMC meetings flow directly into EFFR, SOFR, and other money market rates. The historical Federal Reserve discount rate has become less important; IORB is the rate that matters now.

How to Read the Print

IORB level vs target range upper bound. IORB is typically set 10 bp below the upper bound of the fed funds target range. For example, target range 3.50-3.75% → IORB 3.65%.

EFFR-IORB spread. EFFR typically trades 1-5 bp below IORB in normal conditions. When the spread widens (EFFR notably below IORB), reserves are abundant. When the spread narrows or inverts (EFFR at or above IORB), reserve scarcity is emerging.

IORB-ON RRP spread. The corridor between IORB (floor for banks) and ON RRP rate (floor for money funds) determines where money market rates can trade. The corridor is typically 10-25 bp wide.

Historical Context

IORB (and its predecessor IOER) was introduced in October 2008. From 2008-2015 it was set at 0.25% (the ZIRP floor). Through 2018-2019 it was adjusted incrementally to fine-tune EFFR. The 2022-2024 hiking cycle drove IORB from 0.10% to 5.40% by mid-2023.

Through 2024-2025, IORB has been set at approximately 3.65% (with the fed funds target range at 3.50-3.75%). Future Fed cuts will lower IORB symmetrically with target range changes. The administered-rate framework has proven robust through the post-pandemic cycle and is unlikely to change in the near term.