IORB, or Interest on Reserve Balances, is the rate the Federal Reserve pays commercial banks on funds held in their Fed master accounts. Introduced as a single rate in July 2021 (consolidating the former IOER and IORR), it is the Fed's main administered tool for keeping the federal funds rate inside the FOMC's target range.

How does IORB set a floor under interest rates?

IORB sets a floor because a bank earns the IORB rate risk-free by simply holding reserves at the Fed, so it has no incentive to lend those reserves to other banks at a lower rate. This anchors the bottom of the funds corridor; arbitrage keeps the effective federal funds rate near IORB in an ample-reserves regime.

Why does SOFR printing above IORB matter?

SOFR printing above IORB signals that reserves have grown scarce and secured funding is bidding up past the Fed's administered floor. It is an early warning of money-market tightness, echoing the September 2019 repo spike, and pressures the Fed to slow or end quantitative tightening to keep reserves ample.

How does IORB differ from the ON RRP rate?

IORB is paid to banks on reserve balances, while the overnight reverse repo (ON RRP) rate is offered to non-bank counterparties like money market funds. The ON RRP rate sits a few basis points below IORB, forming the lower bound of the funds corridor for entities ineligible to earn IORB.

When did IORB replace IOER?

IORB replaced the separate IOER (interest on excess reserves) and IORR (interest on required reserves) rates in July 2021. The consolidation followed the Fed's March 2020 decision to cut reserve requirements to zero, which made the distinction between required and excess reserves obsolete.

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Glossary

IORB

Interest on Reserve Balances · Interest Rate on Reserve Balances · IOR

IORB is the rate the Federal Reserve pays banks on balances held in their master accounts. It is the Fed's primary administered tool for steering the federal funds rate, setting an effective floor under money-market rates by making reserves a risk-free yielding asset.

How it works

The Fed sets IORB administratively and adjusts it in lockstep with the target funds range. Banks should not lend reserves below the risk-free IORB rate, so it anchors the floor of the funds corridor; the overnight reverse repo (ON RRP) rate sits just beneath it for non-bank counterparties.

Why it matters now

As QT drains reserves toward "ample but not abundant" levels in 2025, SOFR printing at or above IORB signals tightening money-market plumbing — a key tell for when the Fed must slow or halt balance-sheet runoff to avoid a 2019-style repo squeeze.

Example

In March 2025 the Fed held IORB at 4.40%, four basis points below the 4.50% top of the 4.25–4.50% target range. When SOFR drifts above IORB — as it did intermittently around quarter-end 2024 — it indicates reserves are scarce enough that secured funding bids up past the administered floor, pressuring the Fed to taper QT.

Mechanism

IORB interest = reserve balance × IORB rate × (days / 360); IORB typically set a few bp below the top of the FOMC target range

How desks use it

Tracking SOFR-minus-IORB spread to gauge reserve scarcity and time QT taper
Reading whether the effective funds rate is drifting within the FOMC corridor

Key moves

2008-10Fed begins paying interest on reserves under emergency authority, enabling floor-system implementation.
2021-07Fed consolidates IOER and IORR into a single IORB rate after reserve requirements cut to zero.

Frequently asked

What is IORB?: IORB, or Interest on Reserve Balances, is the rate the Federal Reserve pays commercial banks on funds held in their Fed master accounts. Introduced as a single rate in July 2021 (consolidating the former IOER and IORR), it is the Fed's main administered tool for keeping the federal funds rate inside the FOMC's target range.
How does IORB set a floor under interest rates?: IORB sets a floor because a bank earns the IORB rate risk-free by simply holding reserves at the Fed, so it has no incentive to lend those reserves to other banks at a lower rate. This anchors the bottom of the funds corridor; arbitrage keeps the effective federal funds rate near IORB in an ample-reserves regime.
Why does SOFR printing above IORB matter?: SOFR printing above IORB signals that reserves have grown scarce and secured funding is bidding up past the Fed's administered floor. It is an early warning of money-market tightness, echoing the September 2019 repo spike, and pressures the Fed to slow or end quantitative tightening to keep reserves ample.
How does IORB differ from the ON RRP rate?: IORB is paid to banks on reserve balances, while the overnight reverse repo (ON RRP) rate is offered to non-bank counterparties like money market funds. The ON RRP rate sits a few basis points below IORB, forming the lower bound of the funds corridor for entities ineligible to earn IORB.
When did IORB replace IOER?: IORB replaced the separate IOER (interest on excess reserves) and IORR (interest on required reserves) rates in July 2021. The consolidation followed the Fed's March 2020 decision to cut reserve requirements to zero, which made the distinction between required and excess reserves obsolete.

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Sources

Implementing Monetary Policy in an Ample-Reserves Regime — Federal Reserve