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Lessons from the Historical Use of Reserve Requirements in the United States to Promote Bank Liquidity

Author

Listed:
  • Mark Carlson

    (Board of Governors of the Federal Reserve System)

Abstract

Efforts in the United States to promote bank liquidity through reserve requirements, a minimum ratio of liquid assets relative to liabilities, extend as far back as 1837. Despite such requirements, banking panics and suspensions of deposit convertibility continued to occur. Eventually, policymakers created a central bank to ensure bank liquidity. This paper reviews the historical debates about reserve requirements, supplemented by empirical evidence, to provide insights relevant today about using reserve requirements to regulate liquidity. The insights are related to convincing institutions to use the reserve during stress events and the ways reserve requirements for banks affect interactions with other financial firms before and during a panic.

Suggested Citation

  • Mark Carlson, 2015. "Lessons from the Historical Use of Reserve Requirements in the United States to Promote Bank Liquidity," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 191-224, January.
  • Handle: RePEc:ijc:ijcjou:y:2015:q:1:a:6
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    References listed on IDEAS

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    19. Wicker,Elmus, 2000. "Banking Panics of the Gilded Age," Cambridge Books, Cambridge University Press, number 9780521770231, August.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Liquidity Regulation is Back
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-04-02 11:29:18

    Citations

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    Cited by:

    1. Calomiris, Charles W. & Carlson, Mark, 2016. "Corporate governance and risk management at unprotected banks: National banks in the 1890s," Journal of Financial Economics, Elsevier, vol. 119(3), pages 512-532.
    2. Douglas J. Elliott & Greg Feldberg & Andreas Lehnert, 2013. "The history of cyclical macroprudential policy in the United States," Finance and Economics Discussion Series 2013-29, Board of Governors of the Federal Reserve System (US).
    3. Carlson, Mark A. & Wheelock, David C., 2016. "Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Congation Risk?," Working Papers 2016-12, Federal Reserve Bank of St. Louis, revised 06 Oct 2017.
    4. Aleksandra Maslowska-Jokinen & Anna MatysekJedrych, 2016. "Post-Crisis Regulatory and Supervisory Arrangements – The New ‘Old’ Central Banking," BAFFI CAREFIN Working Papers 1632, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    5. Carlson, Mark A. & Wheelock, David C., 2016. "Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk?," Finance and Economics Discussion Series 2016-059, Board of Governors of the Federal Reserve System (US).
    6. Mark Paddrik & Jessie Jiaxu Wang, 2016. "Bank Networks and Systemic Risk: Evidence from the National Banking Acts," Working Papers 16-13, Office of Financial Research, US Department of the Treasury.
    7. repec:eee:jfinec:v:125:y:2017:i:3:p:434-453 is not listed on IDEAS
    8. repec:eee:ecofin:v:45:y:2018:i:c:p:215-229 is not listed on IDEAS
    9. Calomiris, Charles W. & Carlson, Mark, 2017. "Interbank networks in the National Banking Era: Their purpose and their role in the Panic of 1893," Journal of Financial Economics, Elsevier, vol. 125(3), pages 434-453.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • B00 - Schools of Economic Thought and Methodology - - General - - - History of Economic Thought, Methodology, and Heterodox Approaches

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