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An Investigation of the Effect of the 1990 Reserve Requirement Change on Financial Asset Prices
Author(s) -
Stewart Jonathan D.,
Hein Scott E.
Publication year - 2002
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/1475-6803.00024
Subject(s) - eurodollar , shareholder , monetary economics , asset (computer security) , reserve requirement , economics , interest rate , business , financial system , finance , monetary policy , central bank , corporate governance , computer security , computer science
In 1990, the Federal Reserve reduced reserve requirements on large, nonpersonal time deposits and net Eurocurrency liabilities. In this article we provide evidence on who gained from the reduction in this tax. No evidence is found to suggest that large depositors gained by way of higher yields. Rather, evidence indicates a decline in Eurodollar interest rates relative to other money market rates. Evidence further shows that bank shareholders were recipients of abnormal share price appreciation following the announcement. There is little evidence to indicate that shareholders outside of the banking industry experienced similar abnormal gains.