sure. if IOR goes away but RRP, the facility maintained to allow nonbanks to earn effectively IOR, was maintained, then IOR would just be replaced by banks using that facility. 1/

as you suggest, there are potential glitches: RRP is limited by the Fed’s collateral. “the Fed’s balance sheet” is too vague a descriptor for constraints: reserve liabilities are a greater share of that balance sheet than suitable RRP collateral. 2/

but setting that aside, this is all a way of saying if the Fed did away with IOR but didn’t REALLY do away with IOR by maintaining RRP, little might change if technicalities are addressed. 3/

if the Fed is forced to actually stop paying IOR—whether directly or via interest paid to repo lenders—on the theory that banks don’t deserve the interest, presumably the RRP loophole would be eliminated as well. 4/

in which case, short-term risk-free rates are pinned at zero until the quantity of reserves is made scarce relative to banks — still extant! — need for reserves to clear and settle overnight. 5/

(yes, other facilities, other technicalities, but none are designed to replace actual settlement at scale. absent IOR, unless facilities are retooled to literally replace reserve-based net settlement, banks will come to demand and pay to borrow reserves when quantity grows sufficiently scarce.) 6/

(new systems and tools and facilities are layered on top of old systems and practices which, like a reptile brain, remain, sit beneath, backstop our monetary system. no existing facility is capable of replacing net settlement at scale, with FFR and the discount window and all of that.) /fin