FAIR Act Removes Federal Reserve Restriction on Earnings from Financial Institution Balances

The Fiscal Accountability for Interest on Reserves Act—the FAIR Act—is a short piece of legislation that makes one very specific, technical change to the Federal Reserve Act. Essentially, it strikes out paragraph (12) from Section 19(b) of the Federal Reserve Act, which currently restricts the earnings the Federal Reserve can collect on certain balances held by financial institutions. This change isn't instant; it’s scheduled to kick in 180 days after the bill becomes law (Sec. 2).

The Fine Print: What’s Being Erased?

Think of the Federal Reserve (the Fed) as the central bank that manages the money supply and oversees the big banks. When banks hold money at the Fed, those balances can sometimes earn interest or be subject to various rules. The FAIR Act removes an existing rule—a restriction—on what the Fed can earn from those balances. For the average person, this sounds like bureaucratic noise, but these technical rules matter because the Fed’s earnings are eventually remitted back to the U.S. Treasury, which helps fund government operations.

Since the bill only tells us what is being removed, not what the restriction actually was, we have to look at this like a missing piece of a puzzle. Removing a restriction generally gives the entity—in this case, the Federal Reserve—more flexibility in how it manages its books and potentially more control over those earnings. The question is whether this removal simplifies operations for the Fed or if it removes a necessary layer of oversight that ensured those earnings were managed in the public interest.

Why This Matters to Your Wallet

When the Fed makes decisions about how it handles money, it eventually trickles down to everyone. If the removal of this restriction allows the Fed to manage these balances more efficiently, it could potentially mean more revenue is eventually sent back to the Treasury. That’s a good thing for taxpayers, as it helps offset government spending. However, if the restriction was in place to prevent the Fed from using these earnings in less transparent ways, its removal could be concerning.

This is a classic example of a bill that looks simple on paper but involves complex financial plumbing. Because we don't have the context of the removed paragraph, it’s hard to predict the exact real-world impact. However, any change that alters how the Federal Reserve handles money involving financial institutions—especially one that removes a prior limitation—warrants attention. It shifts some control, or at least changes the rules of the game, for how the nation’s central bank manages a portion of its revenue stream, which ultimately belongs to the public.