IORB
Definition · Level 8 · Rates, FX & macro
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Interest on reserve balances: the rate the Fed pays banks on the reserves they hold at the Fed. Banks will not lend reserves much below it, so it holds the fed funds rate inside its target range.
Example
A bank can earn IORB risk-free at the Fed, so it asks at least that when it lends.
Where Tradecraft teaches it
Level 8 · Rates, FX & macro, in the lesson “Repo, SOFR and the Fed’s balance sheet”: Overnight borrowing against bonds, the benchmark that replaced LIBOR, the tools behind the target range, QE and QT.
Related terms
- CollateralAn asset pledged to secure a loan. If the borrower fails to repay, the lender keeps it.
- LIBORLondon Interbank Offered Rate: the old benchmark set from banks’ estimates of their unsecured borrowing costs.
- QEQuantitative easing: the central bank creates reserves to buy Treasuries and mortgage bonds at scale, expanding its balance sheet to push down…
- QTQuantitative tightening: the central bank shrinks its balance sheet, mostly by letting bonds mature without reinvesting, draining reserves and…
- RepoRepurchase agreement: sell a security and agree to buy it back later at a slightly higher price; economically a short-term loan secured by that…
- Reverse repo rateThe rate at which the Fed borrows cash overnight from money-market funds and other non-banks, against its Treasuries.