U.S. Senator Rand Paul (R-Ky.) has proposed an amendment to the 2026 National Defense Authorization Act (NDAA) that would end the Federal Reserve’s authority to pay banks interest on reserves. The measure, known as the End the Fed’s Big Bank Bailout Act (S.2113), aims to stop a policy that Senator Paul says has cost taxpayers hundreds of billions of dollars and primarily benefits large financial institutions.
“Our country is over $37 trillion in debt, yet the Fed has paid hundreds of billions to banks to keep money idle. While it runs losses and no longer sends profits back to taxpayers, it keeps funneling cash to banks for doing nothing,” said Dr. Paul.
The bill targets two specific forms of payments: Interest on Reserve Balances (IORB) and the Overnight Reverse Repurchase Agreement (ONRRP). According to Senator Paul, “We want to end the Federal Reserve’s twin types of interest payments that act as subsidies for big banks: Interest on Reserve Balances (IORB) and the Overnight Reverse Repurchase Agreement (ONRRP). Together, these two subsidies have cost taxpayers more than half a trillion dollars in just the last five years.”
Before 2008, banks did not receive interest from the Federal Reserve for holding reserve balances. The policy was introduced after Congress authorized such payments during the financial crisis as a tool for managing monetary policy. Initially, these payments averaged about $5 billion per year between 2008 and 2016. However, with recent increases in federal interest rates—now above four percent—the annual cost has surged toward $200 billion over three years.
“At a time of persistent and self-imposed worsening losses at the Fed, the manipulators of the American economy continue to pay banks to do nothing but have their funds sit in a safe,” Dr. Paul added.
The proposal comes amid ongoing concerns about national debt levels and questions regarding how monetary policies impact both taxpayers and major banking institutions.
