IDEAS home Printed from https://ideas.repec.org/a/wly/revfec/v12y2003i1p83-98.html
   My bibliography  Save this article

The determination of commercial bank reserve requirements

Author

Listed:
  • Cara S. Lown
  • John H. Wood

Abstract

Excess reserve ratios have been studied extensively and are believed to be endogenously determined. In contrast, required reserve ratios are conventionally treated as exogenous. However, there are public policy reasons for a positive response of reserve requirements to interest rates. These are opposed by private incentives to secure lower requirements when their cost rises with interest rates. Several kinds of evidence support the hypothesis that reserve requirements are inverse functions of interest rates, sometimes with long lags that reflect the political process. The results also suggest that banks are not passive creatures of regulation but mold their environment.

Suggested Citation

  • Cara S. Lown & John H. Wood, 2003. "The determination of commercial bank reserve requirements," Review of Financial Economics, John Wiley & Sons, vol. 12(1), pages 83-98.
  • Handle: RePEc:wly:revfec:v:12:y:2003:i:1:p:83-98
    DOI: 10.1016/S1058-3300(03)00008-9
    as

    Download full text from publisher

    File URL: https://doi.org/10.1016/S1058-3300(03)00008-9
    Download Restriction: no

    File URL: https://libkey.io/10.1016/S1058-3300(03)00008-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850, National Bureau of Economic Research, Inc.
    2. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
    3. Marvin Goodfriend & Monica Hargraves, 1983. "A historical assessment of the rationales and functions of reserve requirements," Economic Review, Federal Reserve Bank of Richmond, vol. 69(Mar), pages 3-21.
    4. Brunner, Allan D & Lown, Cara S, 1993. "The Effects of Lower Reserve Requirements on Money Market Volatility," American Economic Review, American Economic Association, vol. 83(2), pages 199-205, May.
    5. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, May.
    6. N. Gregory Mankiw & Jeffrey A. Miron, 1986. "The Changing Behavior of the Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 211-228.
    7. Philip Cagan, 1965. "Determinants and Effects of Changes in the Stock of Money, 1875–1960," NBER Books, National Bureau of Economic Research, Inc, number caga65-1, May.
    8. Bartunek, Kenneth S. & Madura, Jeff, 1996. "Wealth effects of reserve requirement reductions in the 1990s on depository institutions," Review of Financial Economics, Elsevier, vol. 5(2), pages 191-204.
    9. Brock, Philip L, 1989. "Reserve Requirements and the Inflation Tax," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 106-121, February.
    10. Slovin, Myron B. & Sushka, Marie E. & Bendeck, Yvette M., 1990. "The market valuation effects of reserve regulation," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 3-19, January.
    11. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lown, Cara S. & Wood, John H., 2003. "The determination of commercial bank reserve requirements," Review of Financial Economics, Elsevier, vol. 12(1), pages 83-98.
    2. Dwyer, Gerald P. & Lothian, James R., 2012. "International and historical dimensions of the financial crisis of 2007 and 2008," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 1-9.
    3. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234, Elsevier.
    4. Eric Monnet & Miklos Vari, 2023. "A Dilemma between Liquidity Regulation and Monetary Policy: Some History and Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 915-944, June.
    5. Sharon Kozicki & Peter A. Tinsley, "undated". "Moving Endpoints in Macrofinance," Computing in Economics and Finance 1996 _058, Society for Computational Economics.
    6. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
    7. Michael D. Bordo, 1989. "Introduction to "Money, History, and International Finance: Essays in Honor of Anna J. Schwartz"," NBER Chapters, in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 1-12, National Bureau of Economic Research, Inc.
    8. Margaret M. Jacobson & Eric M. Leeper & Bruce Preston, 2019. "Recovery of 1933," NBER Working Papers 25629, National Bureau of Economic Research, Inc.
    9. Patrick Honohan, 1994. "The Fiscal Approach to Financial Intermediation Policy," Papers WP049, Economic and Social Research Institute (ESRI).
    10. J. Bradford DeLong & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 679-734, National Bureau of Economic Research, Inc.
    11. Pedro Garcia Duarte, 2015. "From real business cycle and new Keynesian to DSGE Macroeconomics: facts and models in the emergence of a consensus," Working Papers, Department of Economics 2015_05, University of São Paulo (FEA-USP).
    12. Velibor Milošević, 2014. "Use and Limitations of the Reserve Requirement Policy in Montenegro," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 3(2), pages 5-20.
    13. Olivier Darné & Amélie Charles, 2011. "Large shocks in U.S. macroeconomic time series: 1860-1988," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 5(1), pages 79-100, January.
    14. Jaremski, Matthew & Mathy, Gabriel, 2018. "How was the quantitative easing program of the 1930s Unwound?," Explorations in Economic History, Elsevier, vol. 69(C), pages 27-49.
    15. Eric Monnet & Miklos Vari, 2019. "Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy," IMF Working Papers 2019/176, International Monetary Fund.
    16. Nelson, Edward, 2013. "Friedman's monetary economics in practice," Journal of International Money and Finance, Elsevier, vol. 38(C), pages 59-83.
    17. Vides, José Carlos & Golpe, Antonio A. & Iglesias, Jesús, 2021. "The impact of the term spread in US monetary policy from 1870 to 2013," Journal of Policy Modeling, Elsevier, vol. 43(1), pages 230-251.
    18. Michael D. Bordo, 1989. "The Contribution of "A Monetary History of the United States, 1867-1960" to Monetary History," NBER Chapters, in: Money, History, and International Finance: Essays in Honor of Anna J. Schwartz, pages 15-78, National Bureau of Economic Research, Inc.
    19. Mark Toma, 1999. "A Positive Model of Reserve Requirements and Interest on Reserves: A Clearinghouse Interpretation of the Federal Reserve System," Southern Economic Journal, John Wiley & Sons, vol. 66(1), pages 101-116, July.
    20. Alfred A. Haug & William G. Dewald, 2012. "Money, Output, And Inflation In The Longer Term: Major Industrial Countries, 1880–2001," Economic Inquiry, Western Economic Association International, vol. 50(3), pages 773-787, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:revfec:v:12:y:2003:i:1:p:83-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)1873-5924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.