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Asymmetric Information and Optimal Bank Reserves

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  • Cothren, Richard

Abstract

One traditional argument in favor of bank reserve requirements holds that since a b ank and its depositors are asymmetrically informed as to the bank's reserve position and its portfolio, the bank will hold too few reserves and too risky a port folio. This being the case, presumably a central banking authority is equipped t o impose and to monitor a minimal reserve requirement yielding a Pareto superior outcome. This paper analyzes this position in the context of a formalmodel and shows that at least for some parameters of the model there is such a case for a minimal reserve requirement. Copyright 1987 by Ohio State University Press.

Suggested Citation

  • Cothren, Richard, 1987. "Asymmetric Information and Optimal Bank Reserves," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 68-77, February.
  • Handle: RePEc:mcb:jmoncb:v:19:y:1987:i:1:p:68-77
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    Cited by:

    1. Geethanjali Selvaretnam, 2014. "Optimal Reserves and Short-Term Interest Rates in a Model of Bank Runs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(5), pages 537-558, November.
    2. Bakirov Rustam & Grishan Maxim, 2003. "Banking regulation and financial stability," EERC Working Paper Series 99-088e, EERC Research Network, Russia and CIS.
    3. Renee D. Nieberding, 2004. "Optimal Government Finance And Democracy In Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(2), pages 131-148, December.

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