Summary

Prohibits Federal Reserve banks from paying earnings (interest) on balances that depository institutions maintain at the Fed. The change replaces the current legal allowance to pay interest on reserve balances with a flat ban on those payments. This directly reduces a source of income for banks and credit unions that hold balances at the Fed and removes a monetary policy tool the Fed currently uses to help control short‑term interest rates. The law does not specify an effective date or alternative policy measures, so practical effects would depend on how banks and the Fed respond.

Key Points

• Prohibits Federal Reserve banks from paying interest on balances held by depository institutions.
• Amends the Federal Reserve Act to replace authority to pay earnings with an explicit ban.
• Directly reduces or eliminates a source of income for banks and credit unions that hold reserve balances.
• Removes one of the Federal Reserve's operational tools used to help control short‑term interest rates.
• Does not specify an effective date or transitional arrangements.
• Does not create spending, tax, or grant programs.
• Could push banks to reallocate funds into loans or other assets, with uncertain effects on lending and markets.
• May increase volatility in short‑term funding markets until the Fed adapts alternative policy operations.
• Potentially affects large and small banks differently depending on balance holdings and business models.

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