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IORB (interest on reserve balances)

The rate the Federal Reserve pays banks on the reserves they hold at the Fed, the main tool for steering short-term rates inside the target range.

In an ample-reserves system the Fed does not need to add or drain reserves to move rates. It simply changes what it pays on reserves, and because no bank will lend to another below what it can earn risk-free at the Fed, market rates follow.

IORB is normally set a little below the top of the target-range. Together with the overnight-reverse-repo-facility at the bottom and the standing-repo-facility at the top, it forms the corridor that keeps effr in place.

Example: target range 5.25% to 5.50%, IORB 5.40%, ON RRP 5.30%. EFFR prints at 5.33%, comfortably inside, and SOFR at 5.31%.

Related: effr, target-range, overnight-reverse-repo-facility, bank-reserves, standing-repo-facility

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.
Risk and reward on one tradeA price scale showing an entry with a stop two points below and a target six points above, so the reward band is three times the risk band.PRICETARGET 106.00ENTRY 100.00STOP 98.00REWARDRISK6.00 pointsthree times the risk2.00 pointsthe most you loserisk : reward = 1 : 3
Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.

Educational only, not advice. Spotted an error? Post in Site Feedback.