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Monetary Policy with a touch of Basel

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  • Ralph Chami
  • Thomas F. Cosimano

Abstract

The typical portrait of monetary policy has the banks and the money supply being manipulated through changes in bank reserves. However, with only a small portion of bank deposits now subject to reserve requirements, an alternative explanation of how monetary policy influences banks is needed. Over the last decade, capital requirements have effectively replaced reserve requirements as the main constraint on the behavior of banks. This paper explores the implications of Basel capital requirements for monetary policy. In particular, we identify a "bank balance-sheet channel" of monetary policy, which operates through the impact on the money stock and the economy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/151.

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Length: 47
Date of creation: 01 Oct 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/151

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Keywords: Monetary policy; banking; bank capital; banking industry; basel accord; reserve requirements; net interest margin; treasury securities; transmission of bank behavior; reserve requirement; bank lending; deposit insurance; contractionary subordinated debt; banking model; monetary economics; bank holding; bank deposits; tier 2 capital; tier 1 capital; monetary control; monetary transmission; money stock; bank reserves; prudential regulation; bank loans; bank capital regulation; central bank; dividend policy; money supply; bank for international settlements; retained earnings; monetary fund; capital regulation; monetary transmission mechanism; bank managers; banking services; bank profits; bank regulations; present value; bank equity; demand for money; bank holding companies; liability management; tight capital adequacy; bank financing; central banking; bank charges; bank market; bank balance sheets; return on investment; capital budgeting; banking systems; european monetary union; bank bailouts; sweep account; bank management; off balance sheet; check clearing; bank dividends; banking sectors; banking sector; bank runs; monetary base; monetary union; banking system; equity investment; banking theory; bank competition; aggregate demand; holding company; bank profitability; bank deposit; bank size; reserve ratio; banking scope; bank secrecy; banking market; personal saving; bank assets; bank holding company; banking supervision; bank asset; monetary aggregates;

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References

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