IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/67536.html

Reserve Requirements as Implicit Taxation of Commercial Banks

Author

Listed:
  • Eromenko, Igor

Abstract

Reserve requirements is viewed as very important instrument of the monetary policy, with the help of which Central Bank can influence at money supply and credit creation. At the same time this instrument imposes implicit tax on financial institutions, which are subject to this regulation. Reserve requirements in Ukraine stay at quite high level and the topic of this paper is analysis of such implicit taxation, its impact on economy and possible path of reforms in Ukraine. We argue that faced wit high reserve requirements and, as a consequence, diminishing revenues, commercial banks will try to pass as much costs as they can to their clients, widening interest rate spread. Eventual effect of high reserve requirements would be lower deposit rate, higher loan rate, less intermediation and aggregate investment that finally can lead to drop in output. In this paper we develop formal model of implicit taxation and provide empirical analysis, roughly estimating cost of reserve requirements for Ukrainian banking sector, which comes to almost 1 UAH bn per year. Further, we discuss policy issues and possibility of reducing reserve requirements and come to the conclusion that in Ukraine gradual decrease of required reserves is possible and indeed needed.

Suggested Citation

  • Eromenko, Igor, 2002. "Reserve Requirements as Implicit Taxation of Commercial Banks," MPRA Paper 67536, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:67536
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/67536/1/MPRA_paper_67536.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kevin Clinton, 1997. "Implementation of Monetary Policy in a Regime with Zero Reserve Requirements," Staff Working Papers 97-8, Bank of Canada.
    2. Loungani, Prakash & Rush, Mark, 1995. "The Effect of Changes in Reserve Requirements on Investment and GNP," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 511-526, May.
    3. Gordon H. Sellon & Stuart E. Weiner, 1997. "Monetary policy without reserve requirements : case studies and options for the United States," Economic Review, Federal Reserve Bank of Kansas City, vol. 82(Q II), pages 5-30.
    4. Anatoli Kuprianov, 1997. "Tax disincentives to commercial bank lending," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 67-97.
    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. Xiaohui Zhang & Zhihong Ji & Yong Cui, 2009. "Reserve requirement, reserve requirement tax and money control in China: 1984–2007," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(3), pages 361-383, September.
    2. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
    3. Georg Rich, 1997. "Do Central Banks Need Minimum Reserves?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(IV), pages 691-708, December.
    4. Yueh-Yun C. O'Brien, 2007. "Reserve requirement systems in OECD countries," Finance and Economics Discussion Series 2007-54, Board of Governors of the Federal Reserve System (U.S.).
    5. Amir Kia, 2006. "Economic policies and demand for money: evidence from Canada," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1389-1407.
    6. Morten L Bech & Cyril Monnet, 2013. "The Impact of Unconventional Monetary Policy on the Overnight Interbank Market," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Lilley & Mark Manning (ed.),Liquidity and Funding Markets, Reserve Bank of Australia.
    7. Elliot Boateng & Mary Amponsah & Collins Annor Baah, 2017. "Complementarity Effect of Financial Development and FDI on Investment in Sub-Saharan Africa: A Panel Data Analysis," African Development Review, African Development Bank, vol. 29(2), pages 305-318, June.
    8. 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.
    9. Bental, Benjamin & Eden, Benjamin, 2002. "Reserve requirements and output fluctuations," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1597-1620, November.
    10. Edwin Le Heron, 2003. "A new consensus on monetary policy?," Brazilian Journal of Political Economy, Center of Political Economy, vol. 23(4), pages 505-530.
    11. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.
    12. Christian Glocker & Pascal Towbin, 2012. "The Macroeconomic Effects of Reserve Requirements," WIFO Working Papers 420, WIFO.
    13. 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.
    14. Haslag, Joseph H. & Hein, Scott E., 1995. "Does it matter how monetary policy is implemented?," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 359-386, April.
    15. Karen Cabos & Nikolaus Siegfried, 2004. "Controlling inflation in Euroland," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 549-558.
    16. Parnell Chu & Grahame Johnson & Scott Kinnear & Karen McGuinness & Matthew McNeely, 2022. "Settlement Balances Deconstructed," Discussion Papers 2022-13, Bank of Canada.
    17. Jeffrey M. Wrase, 1998. "Is the Fed being swept out of (monetary) control?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
    18. Michael Woodford, 2000. "Monetary Policy in a World Without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    19. Nicolas Couderc, 2005. "Réserves obligatoires : un état des lieux," Revue d'Économie Financière, Programme National Persée, vol. 78(1), pages 363-380.
    20. William C. Whitesell, 2003. "Tunnels and reserves in monetary policy implementation," Finance and Economics Discussion Series 2003-28, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    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:pra:mprapa:67536. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.