FAIR Act
- Bill Number
- H.R. 4789
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2025-07-29: Referred to the House Committee on Financial Services.
- Last Updated
- 2025-12-05T22:56:42Z
AI-Generated Summary
Purpose
The FAIR Act (Fiscal Accountability for Interest on Reserves Act) aims to eliminate the Federal Reserve's authority to pay interest on reserves held by banks and other depository institutions. This is intended to promote fiscal responsibility by reducing government payments to private banks for holding excess reserves, potentially redirecting those funds to the U.S. Treasury.
Key Provisions
- Amendment to Federal Reserve Act: The bill strikes paragraph (12) from Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)), which currently authorizes the Federal Reserve to pay interest on balances (reserves) maintained by depository institutions at Federal Reserve Banks.
- Effective Date: The change takes effect 180 days after the bill's enactment, providing a transition period for affected institutions.
- Short Title: The legislation is officially titled the "Fiscal Accountability for Interest on Reserves Act" or "FAIR Act."
Significant Changes to Existing Law
- Removal of Interest Payments: Prior to this amendment, the Federal Reserve could pay interest on required reserves (minimum amounts banks must hold) and excess reserves (additional amounts beyond the minimum). Striking this provision ends all such interest payments, reverting to pre-2008 practices when the Federal Reserve did not pay interest on reserves.
- No Other Modifications: The bill makes no changes to other aspects of reserve requirements or Federal Reserve operations, focusing solely on this one paragraph.
Potential Impacts
- On Government Agencies: The Federal Reserve would no longer incur costs for interest payments, potentially increasing its remittances (profits) to the U.S. Treasury by billions annually, based on historical data. This could reduce the federal budget deficit or free up funds for other uses.
- On Citizens and Economy: Banks might face higher costs for holding excess reserves, encouraging them to lend more to businesses and consumers, which could stimulate economic activity, lower borrowing costs, or increase inflation if lending surges. Everyday citizens could see indirect effects through changes in interest rates on loans, savings, or mortgages.
- On International Relations: Minimal direct impact, though alterations to U.S. monetary policy tools could influence global financial markets and the dollar's value, affecting international trade and foreign investment in U.S. assets.
Main Stakeholders Affected
- Depository Institutions (Banks): Primary losers, as they would forgo interest income on trillions in reserves (currently over $3 trillion in excess reserves), potentially squeezing profits and altering lending behavior.
- Federal Reserve System: Loses a key tool for managing interest rates and monetary policy; it may need to adjust other mechanisms, like open market operations, to influence short-term rates.
- U.S. Treasury and Taxpayers: Beneficiaries through higher Federal Reserve remittances, which could offset government spending or reduce the need for taxes/borrowing.
- Broader Financial Sector: Includes money market funds and investors who might see shifts in liquidity and yields.
Notable Legal, Constitutional, or Political Implications
- Legal: The amendment is straightforward and within Congress's constitutional authority over monetary policy (Article I, Section 8). It does not challenge the Federal Reserve's independence but removes a specific power granted in 2006 (amended in 2008). Legal challenges could arise if banks argue it impairs contracts or property rights related to existing reserves.
- Constitutional: Aligns with Congress's power to coin money and regulate its value, reinforcing legislative oversight of the Federal Reserve without altering its structure.
- Political: Could spark debate over Federal Reserve independence versus fiscal accountability, with supporters viewing it as curbing "corporate welfare" to banks, and opponents warning of disruptions to economic stability post-2008 financial crisis. As an introduced bill (H.R. 4789, 119th Congress), it faces committee review and potential amendments before any floor vote.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Rep. Davidson, Warren [R-OH-8]
Recent Actions
- 2025-07-29: Referred to the House Committee on Financial Services.
- 2025-07-29: Introduced in House
- 2025-07-29: Introduced in House
Bill Versions
- Fiscal Accountability for Interest on Reserves Act — issued 2025-07-29 — PDF (2 pages)