S.2113 - End the Fed’s Big Bank Bailout Act (119th Congress)
Summary
S.2113, the "End the Fed's Big Bank Bailout Act," aims to amend the Federal Reserve Act by prohibiting Federal Reserve banks from paying earnings on balances held by or on behalf of depository institutions. The bill was introduced in the Senate by Mr. Paul on June 18, 2025, and referred to the Committee on Banking, Housing, and Urban Affairs. The core objective is to eliminate what is perceived as a subsidy to large banks.
This is achieved by striking paragraph (12) of Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)) and replacing it with a prohibition on earnings for depository institutions' balances at the Fed. The short title of the Act clearly indicates its intent to end what it labels as a bailout mechanism for big banks.
Expected Effects
If enacted, this bill would directly impact the profitability of banks that hold balances at Federal Reserve banks. Banks would no longer receive earnings on these reserves. This could lead to changes in bank behavior, such as reduced reserve holdings or altered lending strategies.
The broader financial system could also be affected, potentially influencing monetary policy implementation and interbank lending markets. The Federal Reserve's tools for managing the money supply might require recalibration.
Potential Benefits
- Reduced risk of moral hazard: By removing earnings on reserves, the bill aims to discourage excessive risk-taking by large banks, as they would not be able to rely on subsidized returns on their reserves.
- Potential for decreased government debt: If the Federal Reserve's payments to banks are reduced, this could lead to increased revenue for the government, potentially lowering the national debt.
- Increased market discipline: Eliminating earnings on reserves could force banks to be more efficient and competitive, as they would need to find other ways to generate profits.
- Reduced advantage for large banks: The bill seeks to level the playing field between large and small banks by removing a perceived advantage for institutions that hold large reserves at the Fed.
Most Benefited Areas:
Potential Disadvantages
- Potential for reduced bank profitability: Banks may see a decrease in their earnings, which could lead to reduced lending and investment.
- Increased risk of financial instability: If banks reduce their reserve holdings, this could make the financial system more vulnerable to shocks.
- Possible impact on monetary policy: The Federal Reserve may need to adjust its monetary policy tools to compensate for the change in bank behavior.
- Unintended consequences for smaller banks: While the bill targets large banks, it could also negatively affect smaller banks that rely on earnings from reserves.
Constitutional Alignment
The bill appears to align with the Constitution, particularly Article I, Section 8, which grants Congress the power to coin money and regulate the value thereof. By amending the Federal Reserve Act, Congress is exercising its authority over the monetary system.
There are no apparent violations of individual rights or freedoms guaranteed by the Bill of Rights. The bill does not infringe on freedom of speech, religion, or any other protected right. The bill primarily deals with economic regulation, which falls within the purview of Congress's enumerated powers.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).