- Financial crisis... everyone wants safe liquid assets, like short term Treasurys, bank deposits. - Those instruments get bid up, rates go to 0. - This break

- Financial crisis... everyone wants safe liquid assets, like short term Treasurys, bank deposits. - Those instruments get bid up, rates go to 0. - This breaks retail Main Street banking model... no point in banks paying to rent and staff branches, take deposits from customers when they have more deposits than they know what to do with, no safe liquid place to invest that pays any return at all. - To not make the crisis worse with branch closures, bank layoffs, Fed starts paying interest on excess reserves... bank takes deposits, puts them at the Fed in excess reserve account, Fed pays 0.25%. - On the one hand this saves bank branches from closing, retail customers from being charged fees... on the other hand you're paying banks not to lend in a back-door bailout. - My first guess would be that the Fed would have to taper QE, let short rates rise above 0 before ending IOER. But maybe there is some room to reduce IOER a small amount where a retail deposit would be breakeven but the back-door bailout would be reduced/eliminated. - Naturally the banks are going to squawk. Ultimately one side will back down and depositors probably won't have to pay fees.