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Bank Reserve Requirements as an Impediment to Signaling

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  • Greenbaum, Stuart I
  • Thakor, Anjan V

Abstract

Effective legal reserve requirements may hamper the private capital market's ability to price bank deposits. In the model developed here, the market has less information about bank assets than the banks have, and a bank can therefore signal its superior information through its choice of excess reserves. Mandatory reserves can inhibit such signaling and therefore result in inefficient deposit pricing. Copyright 1989 by Oxford University Press.

Suggested Citation

  • Greenbaum, Stuart I & Thakor, Anjan V, 1989. "Bank Reserve Requirements as an Impediment to Signaling," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 75-91, January.
  • Handle: RePEc:oup:ecinqu:v:27:y:1989:i:1:p:75-91
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    References listed on IDEAS

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