Overtollige reserves

Excess reserves are funds that commercial banks hold beyond any mandated minimum. As of late 2025, this requirement is zero in the U.S., so banks hold large reserves for other important reasons.

This is often a precautionary measure. By keeping extra funds highly liquid, banks can prepare for unexpected events, such as large customer withdrawals.

Additionally, during times of economic uncertainty, banks may worry about borrowers defaulting, making it feel safer to hold onto reserves.

In the U.S., these excess reserves are typically deposited with the Federal Reserve, where banks earn interest on them through Interest on Reserve Balances (IORB). The Fed uses the IORB rate as a key tool to influence economic conditions.

By increasing the IORB rate, the Fed encourages banks to hold their reserves instead of lending, which helps slow economic activity.

On the other hand, lowering the IORB rate makes it less attractive for banks to keep excess reserves, creating an incentive for them to lend more and help stimulate the economy.