Business Case Studies & Business Publications

The Battle for Interest on Reserves

Hachem, Kinda

Case

The Battle for Interest on Reserves

Hachem, Kinda

GEM-0263 | Published May 15, 2026 | 15 Pages Case

Collection: Darden School of Business

Product Details

In 2017, TNB USA Inc. (TNB) set out to be a narrow bank—a depository institution that parks all of its deposits at the central bank to earn interest on reserves (IOR). This model involves no maturity transformation, aiming instead to democratize IOR by passing higher yields to institutional investors. The Federal Reserve, fearing threats to financial stability and disruptions to its monetary policy tool kit, denied TNB the master account needed to earn IOR. By 2025, the debate had shifted to Congress, where the Fiscal Accountability for Interest on Reserves (FAIR) Act threatened to abolish IOR entirely, framing it as a taxpayer-funded subsidy to large banks. Jamie McAndrews, CEO of TNB and former central banker, must now decide what position to take in front of the Senate Banking Committee if called to testify as the debate over the FAIR Act intensifies. The case is designed for an MBA elective on money and banking. At Darden, it is paired with the technical note “Unconventional Monetary Policy” (UVA-GEM-0196), which covers the basics of the market for reserves and the augmented expectations hypothesis, helping students anchor their thinking about the mechanics of unconventional monetary policy before exploring topics such as quantitative easing, IOR, and the political economy of central banking through the lens of the case.

• Understand the role of IOR in the ample-reserves regime of monetary policy. • Discuss the implementation and effects of quantitative easing. • Explore financial-stability implications of narrow banking. • Explore how the size of the central bank’s balance sheet affects Treasury remittances, which also serves to introduce the political economy of central banking.