Solvency vs competition: Hobson's choice for the Fed

I demonstrate three propositions about U.S. banking. Required reserves do not enhance bank safety; they place an upper bound on some bank deposits including loans. Useful bank reserves are its unrestricted liquid assets but liquidity cannot be available for all banks simultaneously. Required reserve...

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Veröffentlicht in:Journal of international money and finance 2007-11, Vol.26 (7), p.1151-1173
1. Verfasser: Telser, Lester G.
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description I demonstrate three propositions about U.S. banking. Required reserves do not enhance bank safety; they place an upper bound on some bank deposits including loans. Useful bank reserves are its unrestricted liquid assets but liquidity cannot be available for all banks simultaneously. Required reserves create pressures forcing all banks to move in tandem and penalize individuals swimming against the tide. Reserve requirements constrained competition among banks until 1992 when major legal changes eliminated them. Federal Funds Rate became a signal reducing competition among banks. Now short-term rates and the Federal Funds Rate move in lock step. This reduces bank competition.
doi_str_mv 10.1016/j.jimonfin.2007.06.010
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subjects Bank liquidity
Bank operations
Bank reserves
Competition
Competition between banks
Federal funding
Federal funds rate
Interest rates
Liquidity
Monetary policy
Monetary policy (targets, instruments and effects)
Reserve requirements
Safety
Solvency
Structural analysis
Studies
U.S.A
title Solvency vs competition: Hobson's choice for the Fed
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