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BANK RESERVE REQUIREMENTS AS AN IMPEDIMENT TO SIGNALING
Author(s) -
GREENBAUM STUART I.,
THAKOR ANJAN V.
Publication year - 1989
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1989.tb01164.x
Subject(s) - reserve requirement , official cash rate , capital requirement , bank reserves , economics , excess reserves , chinese financial system , bank run , open market operation , bank regulation , bank rate , monetary reform , macroprudential regulation , private information retrieval , monetary economics , business , financial system , microeconomics , central bank , macroeconomics , monetary policy , market liquidity , systemic risk , incentive , computer science , financial crisis , computer security , china , political science , law
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.