Texas Sen. Ted Cruz pitched Republican senators Wednesday on ending the Federal Reserve’s authority to pay interest to banks, claiming it would save $1.1 trillion over a decade, with members of the party’s conservative flank lauding the idea.

“I made the case directly to the president in the Oval Office last week, I made the case at lunch today,” Cruz said in an interview at the Capitol. If the idea is added to Trump’s massive tax and spending package, it could help to offset the cost and limit its impact on the deficit, Cruz said.

Cruz noted payments of interest on reserves only started in 2008 during the financial crisis but have exploded from $1 billion that year to $186 billion in 2024 as interest rates climbed.

“The case I made at lunch is we’re agonizing trying to find a $50 billion cut here and there. This is over a trillion dollars, big dollars in savings,” he said. “Half of it is going to foreign banks, which makes no sense.”

Bond purchases

The Fed first paid interest on reserve balances, or IORB, after it began its first round of large-scale bond purchases. Those purchases were aimed at stimulating the economy, but also created outsized bank reserves.

Paying interest on the swelling reserves often ensured that banks wouldn’t lend them out at a lower rate than the Fed wanted, thereby holding a floor under the overnight interbank market.

Cruz rejected the argument that the Fed needs to pay interest to help control short-term interest rates, given the payments didn’t occur before 2008.

“From 1913 to 2008, they managed to do it just fine,” he said.

Blake Gwinn, head of U.S. interest rate strategy at RBC Capital Markets, said adopting the proposal could create severe difficulties for the Fed.

“If you do it, you’re going to have to give it a lot of runway,” Gwinn said. “To end it immediately would be disastrous. To unwind this you have to have some lag time. If you don’t give it lag time, it’s going to be a huge mess.”

Barclays strategists on Monday predicted the Fed’s interest expenses would remain elevated even if lawmakers eliminated interest on reserves. In that case, they wrote, more cash would likely shift to a separate Fed program, the Overnight Reverse Repurchase Facility, that is also used to stabilize money market rates.

Cruz predicted some of the bank reserves would instead be put in short-term government debt instead, which he said would help lower interest rates and drive down the government’s interest expenses.

Two conservative holdouts on the tax bill — Rick Scott of Florida and Ron Johnson of Wisconsin — also are backing the idea, as is prominent Texas Representative Chip Roy.

Scott said he’s pitched the idea to many people to help shrink the deficit. “We have to balance the budget,” he said.

‘Really stupid’

Johnson called the Fed interest payments, especially to foreign banks, “really stupid.”

He mocked resistance from banks. “Everybody loves free federal money,” he said sarcastically. “That just locks up capital.”

Congress first authorized the U.S. central bank to pay interest on reserves in 2006 through the Financial Services Regulatory Relief Act. It was initially slated to take effect in 2011 but was pulled forward as the result of the 2008 financial crisis.

Policymakers have since added the overnight reverse repo facility — which pays interest on cash that counterparties, predominantly non-banks like money-market funds, park at the central bank — to solidify the Fed’s control over short-term rates.

But eradicating IORB could change how banks manage liquidity, potentially shifting cash back to money markets and crowding out existing participants in Treasury bills, repurchase agreements and fed funds, according to JPMorgan Chase & Co.

Money the Fed pays to banks as interest on reserves doesn’t come from congressionally appropriated funds. But the payouts do reduce the amount of money the Fed remits annually to the Treasury, funds the Treasury would otherwise be forced to borrow.

Interest paid on reserves totaled $186.5 billion in 2024, contributing to the central bank’s $77.6 billion operating loss. 

The Public Company Accounting Oversight Board today sanctioned Heaton & Co. and one of its partners, Kristofer Heaton, for failing to properly document five audits.

The firm violated AS 1215, Audit Documentation, by failing to assemble the proper documentation for five issuer audits. Two of those audits resulted in the firm making significant modifications and additions to the workpapers just before a PCAOB inspection. Although the firms generally disclosed in the workpapers that they had created and modified them after the respective completion dates, those additions and modifications were not adequately documented. 

For the other three issuer audits, one contained numerous incomplete workpapers, another contained workpapers related to a different client, and for the third, the firm created over 90% of the workpapers after the completion date upon PCOAB enforcement staff requesting them. 

“Failing, not once, but multiple times to properly document audit work, calls the integrity of the entire audit into question, and the PCAOB will take action to protect investors,” PCAOB Chair Erica Williams said in a statement.

Heaton, the engagement quality review partner on the five audits, violated AS 1220, Engagement Quality Review, by failing to evaluate whether the documentation reviewed indicated the engagement team responded appropriately to risks and supported the reached conclusions. At the time Heaton provided his concurring approval for the issuance of each audit, certain documentation either did not exist or was insufficient to indicate the engagement team had responded appropriately.

“The respondents failed to comply with multiple PCAOB rules and standards,” Robert Rice, director of the PCAOB’s division of enforcement and investigations, said in a statement. “We will continue to bring enforcement actions to address these violations and ensure that accountability is upheld at every level of the profession.”

The firm also violated PCOAB quality control standards by failing to establish, implement and monitor policies and procedures to provide reasonable assurance that firm personnel would comply with professional standards and the firm’s standards of quality. During that period, Heaton substantially contributed to those violations, in violation of PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations. 

Without admitting or denying the findings, the firm and Heaton consented to the PCAOB’s order, which:

• Censures each respondent;
• Revokes the firm’s registration with the right to apply to re-register after two years, if the firm undertakes remedial measures;
• Bars Heaton from being an associated person of a registered firm with the right to petition the Board to associate with a firm after two years, given he has completed 40 hours of continuing professional education, in addition to CPE requirements related to any professional license he holds; and,
• Imposes civil money penalties of $35,000 on the firm and $25,000 on Heaton.

The accounting profession is more complex than ever before. Small and medium-sized accounting firms face increasing competition, shifting client expectations and rapid technological innovation. While many firms seek to adapt through trial and error, our recent study provides evidence-based insights into what truly drives perceptions of success in this challenging landscape.

Through a survey of 192 firms collected by the Center for Accounting Transformation, we found that the most significant factor consistently associated with success is technological leadership. Firms that consistently stay ahead of their peers with advanced technologies outperform their peers. Beyond technology, other contributors to success include exceeding client expectations and fostering a culture of continuous learning and improvement. 

For practitioners, these findings offer actionable guidance. Success in today’s accounting world is not about doing everything, but about prioritizing the right strategies. Below, we outline the suggestions that can help small and medium-sized firms thrive based on our empirical results.

Key factors driving firm success

Leadership in technology adoption: The clear standout factor in our research is technological leadership. Firms that position themselves ahead of their peers in adopting advanced tools—such as AI, automation and cloud platforms—are consistently perceived as more successful.

• Why it matters: Technology enhances efficiency, allowing firms to automate parts of routine tasks like tax preparation and reviewing workpapers. It also enables firms to remain resilient during periods of rapid change, adapt to shifting client needs, and compete effectively with larger firms. By leveraging technology, firms can streamline operations, reduce costs, and free up resources to focus on higher-value services.
• Survey insight: Respondents noted that tools like AI not only streamline operations but also solve staffing challenges. For instance, respondents to our study noted, “AI allows me to produce more today by myself than when I had a staff of 20.” Additionally, remote work technologies were highlighted as game-changers: “The ability to work anywhere with our paperless environment is a tremendous advantage.”

Exceeding client expectations: Technology is not the only factor that incrementally enhances perceptions of success; firms must also focus on delivering exceptional client experiences. Firms that go beyond meeting expectations to actively contribute to client success see stronger client loyalty and reputational benefits.

• Why it matters: Clients increasingly demand tailored, strategic solutions, not just compliance work. Exceeding expectations strengthens trust and fosters long-term relationships.
• How to implement: Use client feedback to identify service gaps and opportunities for improvement. Train staff to adopt a client service approach, focusing on clients’ broader business goals.

A culture of continuous learning and improvement: Organizational culture is another important driver of success. Firms that emphasize learning, innovation, and improvement outperform those focused solely on team dynamics or routine processes.

• Why it matters: A forward-thinking culture helps firms adapt to industry changes, attract top talent, and retain staff in a competitive labor market.
• How to implement: Implement professional development programs that prioritize tech skills and leadership training. Regularly evaluate firm processes and encourage team input for improvements.

Surprising findings, what didn’t matter as much: Our empirical research also debunks some common assumptions. For example:

• Service specialization: While many practitioners emphasize the need for industry or service specialization, our findings show these factors have limited incremental impact on success.
• Advisory work vs. compliance work: Contrary to popular belief, the balance between advisory and compliance work does not significantly drive success. Instead, success stems from how services are delivered, not the type of services offered.

Practical steps for practitioners

To capitalize on these findings, firms should focus on:

• Investing strategically in technology
  • Assess your firm’s current tech stack and tech abilities and compare it to industry leaders.
  • Prioritize investing in the technology skills of your people and in investments in AI, automation and cloud-based solutions that directly enhance client service and operational efficiency.
• Reframing client relationships
  • Position your firm as a strategic partner, not just a service provider.
  • Create metrics to measure and track client satisfaction and loyalty.
• Fostering a culture of innovation
  • Encourage staff to explore new technologies and processes.
  • Recognize and reward innovative ideas that enhance client or firm outcomes.

Looking to the future

The accounting profession is evolving at a breakneck pace, with new technologies like generative AI, predictive analytics and remote work technology reshaping the landscape. For small and medium-sized firms, success depends on being proactive: adopting transformative technologies, exceeding client expectations, and fostering a forward-thinking culture. By prioritizing these strategies, your firm can navigate the challenges ahead and emerge as a leader in the industry.

For more detailed insights or guidance on implementing these strategies, feel free to reach out to the authors.