Interest on Reserve Balances (IORB)

Think of it this way

It is the rate on a risk-free savings account that only banks can open. If that account pays you 4%, you are not going to lend to anyone at 3%: it would be working to lose money. That is why it sets the floor for everything else.

What is Interest on Reserve Balances (IORB)?

It is what the Federal Reserve pays commercial banks for keeping their money on deposit with it. Since a bank can always earn this rate with no risk at all, in theory it should never lend to anyone for less.

How to read Interest on Reserve Balances (IORB)

A stepped line that only changes when the Fed moves rates. Its value on its own says nothing: what is informative is how far market rates move away from it, and that subtraction is already done in the Cash Scarcity SOFR - IORB and Unsecured Scarcity EFFR - IORB charts. Lag: none; a rate is priced in on the same day.

What Interest on Reserve Balances (IORB) means for the market

IORB is the yardstick. All funding stress analysis consists of comparing market rates with IORB. If the market pays more than IORB for borrowed money, it is because someone genuinely needs that money.

Where the money flows

From the Fed to commercial banks, in the form of interest. Example: a bank with 100 billion on deposit at the Fed at 4% earns about 11 million dollars a day for leaving it idle, without lending it to anyone. That is why no bank lends to a company below this rate: it would be worse off than doing nothing.

What to watch in Interest on Reserve Balances (IORB)

On its own it says nothing: it is an administered rate that changes when the Fed decides and stays flat between meetings. Its usefulness lies in being the reference line for the two spreads in this section. If you open it, open it to see where the floor is and how far SOFR and EFFR move away from it.

It is the theoretical floor for all short-term interest rates.