End the Fed’s Big Bank Bailout Act
- Sponsor
- Sen. Paul, Rand [R-KY]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary), Homeland Security and Governmental Affairs Committee
- Last action
- Dec 11, 2025
Bottom line
The bill seeks to eliminate the Federal Reserve's authority to pay interest on bank reserves, a policy change that would significantly alter monetary policy tools and bank liquidity management.
What it actually does
This bill amends the Federal Reserve Act to explicitly prohibit Federal Reserve banks from paying interest on balances maintained by or on behalf of depository institutions. This change would eliminate the Federal Reserve's primary tool for managing short-term interest rates and bank liquidity, which has been in place since 2008.
Proponents argue
Proponents argue that paying interest on reserves constitutes an unnecessary 'bailout' or subsidy for large banks, distorts market functions by incentivizing banks to hold reserves rather than lend, and contributes to inflation. They contend that ending this practice would restore a more natural market dynamic and increase Federal Reserve remittances to the Treasury.
Opponents contend
Opponents would argue that eliminating interest on reserves would severely hamper the Federal Reserve's ability to manage monetary policy, particularly in controlling inflation and maintaining financial stability. They contend it could lead to increased volatility in short-term money markets and potentially destabilize the banking system by removing a key incentive for banks to hold necessary liquidity.
The bill text is extremely short and straightforward, allowing for quick comprehension by any informed reader.
Section 2, amending Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b))
Prohibition on Earnings on Balances at Federal Reserve Banks
This provision strikes the existing paragraph (12) of Section 19(b) of the Federal Reserve Act and replaces it with new language. The new language explicitly states that no Federal Reserve bank may pay earnings (interest) on balances maintained at a Federal Reserve bank by or on behalf of a depository institution. This effectively eliminates the Federal Reserve's authority to pay Interest on Reserve Balances (IORB), which was established in 2008.
Supporters argue
Supporters argue that eliminating IORB removes an unnecessary subsidy to banks, forcing them to lend out excess reserves rather than holding them, which could stimulate economic activity and reduce the national debt by increasing Fed remittances to the Treasury. They also contend it would reduce inflationary pressures by removing an incentive for banks to hold money out of circulation.
Critics contend
Opponents contend that IORB is a crucial tool for the Federal Reserve to manage the federal funds rate and implement monetary policy effectively. Eliminating it would make interest rate control more difficult, potentially leading to greater volatility in short-term markets and hindering the Fed's ability to respond to economic shocks. They argue it could also disincentivize banks from holding necessary liquidity, increasing systemic risk.
Tradeoffs
The bill creates a tension between providing a direct incentive for banks to hold reserves (which aids monetary policy control and financial stability) and the perception of a 'subsidy' to banks that might distort market behavior or reduce Fed remittances to the Treasury. It also trades off the simplicity and effectiveness of IORB as a monetary policy tool against a return to pre-2008 methods of liquidity management, which may be less precise in the current financial landscape.