could increase IOER rates more slowly than benchmark Fed funds rates, and reserves should be shifted out of the Fed and lent out by banks as the economy improves. Foreign banks have also steeply increased their excess reserves at the Fed which the Financial Times said could aggravate the Fed’s PR problem. By October 2013, the excess reserves at the Federal Reserve had exceeded $2.3 trillion. When there are excess bank reserves fed funds are naturally near 0%. The Federal Reserve Bank was paying 0.25% in IOER very much within the requirements of the Sec. 201 of the Financial Services Regulatory Act of 2006. (A) IN GENERAL. - Balances maintained at a Federal Reserve bank by or on behalf of a depository institution may receive earnings to be paid by the Federal Reserve bank at least once each calendar quarter, at a rate or rates not to exceed the general level of short-term interest rates. By July 2018, excess bank reserves had fallen to $1.8 trillion as the Federal Reserve Bank reduced its balance sheet and demand from the economy picked up. However, the Federal Reserve Bank was now paying 1.95% on IOER which was no longer within the requirements of paying a rate or rates not to exceed the general level of short-term interest rates. Paying 1.95% in IOER when fed funds are naturally near 0% was far more than Congress had ever intended. One of the unintended consequences were banks were no longer lending out their excess bank reserves but rather choosing to receive over $35 billion a year of risk-free interest from the Federal Reserve Bank. Related measures In Scandinavia (2009-) Sweden and Denmark have paid negative interest on excess reserves (effectively taxing banks for exceeding their reserve requirements) as an expansionary monetary policy measure. The Swedish Riksbank had previously paid positive interest rates on all overnight deposits. In the United Kingdom (2009-) The Bank of England started to pay interest of 0.5% on reserves on 5 March 2009. Technically these are not excess reserves, because the United Kingdom does not have reserve requirements. See also Liquidity trap Quantitative easing Quantitative tightening Real interest rate Stagflation ZIRP References Banking Financial economics Monetary policy