Congress moves to strip banks of Fed interest income—but who pays?
S. 2113 — End the Fed’s Big Bank Bailout Act · Filed by Rand Paul (R-KY) · 1 cosponsor · Introduced Jun 18, 2025 · Hearing held
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What it does
This bill amends the Federal Reserve Act to prohibit Federal Reserve banks from paying interest on the reserve balances that commercial banks hold at the Fed. Currently, banks earn interest on these deposits; the bill eliminates that income stream entirely, reducing a revenue source that has grown substantially since the 2008 financial crisis.
Why we flagged it
The bill's sole operative mechanism is a prohibition on Federal Reserve interest payments to depository institutions on their reserve balances. It is a straightforward regulatory restriction, not a subsidy, carve-out, or commemorative measure.
What the text implies
- Banks may offset lost Fed interest income by raising fees on consumer accounts, reducing lending, or tightening credit standards, shifting costs to ordinary depositors and borrowers.
- The bill does not specify what happens to the interest the Fed would have paid — it may remain with the Fed, reduce Fed remittances to the Treasury, or affect monetary-policy transmission.
The full analysis lists 3 implications of this text.
Who it affects
The bill removes a subsidy to large banks, which could reduce moral hazard and encourage market discipline — a public-interest argument. However, banks may pass costs to consumers through higher fees, reduced lending, or tighter credit conditions, and the bill does not redirect the foregone interest to public benefit or deficit reduction, leaving the net effect on ordinary people unclear.