The integration of the offshore and domestic banking system

The thesis of this article is that offshore banks are branches of the major U.S., British, Swiss, German, Japanese, etc., banks situated in ‘monetary havens’ jurisdictions in which they are subject to minimal regulation, especially to requirements that they must hold non-interest bearing reserves against their deposits. Each bank determines the maximum interest rate to pay on offshore deposits as a function of the maximum interest rate on domestic deposits and the implicit tax on reserve requirements. The more rapid growth of offshore deposits than of domestic deposits during the last several decades reflects two factors — the implicit tax on domestic deposits has increased with the upward movement in interest rates and investor assessment of the risk associated with external deposits has decreased. The effective reserve requirement applicable to each bank is the weighted average of requirements applied to its domestic deposits and to its offshore deposits. Because offshore deposits have grown more rapidly than domestic deposits, the effective reserve requirement has decreased: the fractional reserve multiplier has increased. Because the growth of offshore deposits to domestic deposits appears highly variable, the effectiveness of monetary control has declined.     

A Model of QE,Reserve Demand,and the Money Multiplier

Quantitative easing (QE) programs have driven unprecedented expansions in the supply of central bank reserves around the world over the past two decades, fundamentally changing the implementation of monetary policy. The collapse in money multipliers following QE episodes has often been interpreted as implying banks are happy to passively hold most of the reserves created by QE. This paper develops a simple microsimulation model of the banking sector that adapts the traditional money multiplier model and allows for bank reserve demand to be inferred from monetary aggregates. The model allows the use of unwanted reserves by banks to play out over time alongside QE purchases and incorporates both significantly higher reserve demand after 2008 and capital constraints. With these additions, the model explains the persistently lower money multipliers seen in the United States following QE, as well as the growth in commercial bank deposits. The model suggests the demand from banks for reserves has increased substantially since the introduction of QE but not to the point where banks are passively absorbing all newly created reserves.     

Banks, private money, and government regulation

We study competition between inside and outside money in economies with trading frictions and financial intermediation. Claims on banks circulate if the redemption rate is low. When the quantity of fiat money is scarce, coexistence of inside and outside money dominates equilibria with a unique medium of exchange. If outside money is ample, banks choose to redeem claims in outside money, which increases welfare. Under binding reserve requirements, tightening monetary policy leads to credit rationing. Our results support recent trends toward lower reserve requirements. However, we also identify situations where restrictions on note issue are beneficial.     

我国存款准备金制度演变的货币政策视角分析

作为货币政策操作工具的存款准备金制度是包含中央银行对存款准备金率、需要缴存准备金的金融机构、不同类型存款(资产)的存款准备金率、可以作为存款准备金的资产类型、存款准备金的计提方式、存款准备金付息及其(付息时)利率以及相关罚则等内容的确定和调整的一个整体。本文从这七个方面简要回顾了我国存款准备金制度演变的历史,认为我国对存款准备金制度在货币政策体系中作用的认识经历了三个阶段,并从货币政策角度对存款准备金制度工具的作用分别进行论述。最后是结论与启示。     

Financial capital movements and central bank behavior in a two-country,short-run portfolio balance model

This paper analyzes financial capital movements in a two-country, short-run, portfolio balance model which includes two securities that are imperfect substitutes. Following a disturbance, equilibrium is, in general, reattained, but the effects on interest rates, money supplies, and international reserve holdings depend on the monetary and reserve asset management policies of the two central banks. Special attention is focused on the case in which one central bank holds its international reserves in the form of ‘key currency’ securities, thereby sterilizing for the ‘key currency’ country. There are several applications of the central result that, for any disturbance, the less changes in international reserves are allowed to affect money supplies, the larger the change in reserves required to reestablish equilibrium.     

An Investigation of the Effect of the 1990 Reserve Requirement Change on Financial Asset Prices

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.     

存款准备金政策与货币供给

存款准备金政策通常被认为是中央银行调控货币供给的有效工具。但是,从理论和实践可以证明,这一政策工具对货币供给的影响是很有限的。在商业银行有充裕的超额准备金时,法定准备金比率的调整只改变商业银行的准备金构成,而不改变准备金的总额,因而对基础货币和货币乘数都没有影响,或影响都很小;而当商业银行没有超额准备金或只有很少超额准备金时,法定准备金比率的上调将使准备金总额增加,从而使货币乘数缩小,但使基础货币增加。于是,货币乘数缩小对货币供给的影响将被基础货币增加对货币供给的影响所抵消。     

Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

We examine whether public disclosures of tax reserves recently made available through Financial Interpretation No. 48 (FIN 48) reflect corporate tax shelter activities. Understanding this relation is important to corporate stakeholders and researchers keen to infer the aggressive nature of a firm's tax positions from its tax reserve accrual. Our study links public disclosures of tax reserves with mandatory private disclosures of tax shelter participation as made to the Internal Revenue Service's Office of Tax Shelter Analysis. We find strong, robust evidence that the tax reserve is positively associated with tax shelters, while other commonly used measures of tax avoidance are not. Based on out‐of‐sample tests, we also show that the reserve is a suitable summary measure for predicting tax shelters. The tax benefits of tax shelters are economically significant, accounting for up to 48% of the aggregate FIN 48 tax reserves in our sample.     

Interest on bank reserves and optimal sweeping

A key rationale offered by the Federal Reserve for the payment of interest on reserves was to remove the incentive for banks to operate sweep accounts. Sweeping shifts funds from transactions deposits subject to reserve requirements to non-reservable deposits. This paper extends a conventional banking model to analyze sweeping behavior. Sweeping responds positively to increases in bank loan rates and reserve ratios and negatively to increases in the interest rate on reserves or exogenous increases in bank equity. Sweeping generates greater responsiveness in lending to changes in loan rates or the interest rate on reserves and lower responsiveness to changes in reserve ratios or equity than in its absence. Empirical analysis of an explicit condition that we derive suggests that, with an unchanged reserve requirement, the Fed could eliminate sweeping by setting the interest rate on reserves to no less than approximately 4% points below the market loan rate.     

A model of reserves, bank runs, and deposit insurance

A model is presented in which demand deposits backed by fractional currency reserves and public insurance can be beneficial. The model uses Samuelson's pure consumption-loans model. The case for demand deposits, reserves, and deposit insurance rests on costs of illiquidity and incomplete information. The effect of deposit insurance depends upon how, and at what cost, the government meets its insurer's obligation — something which is not specified in practice. It remains possible that demand deposits and deposit insurance are a distortion, and reserve requirements serve only to limit the size of this distortion.     

Financial contagion and the role of the central bank

We investigate the role of a central bank (CB) in preventing and avoiding financial contagion. The CB, by imposing reserve requirements on the banking system, trades off the cost of reducing the resources available for long-term investment with the benefit of raising liquidity to face an adverse shock that could cause contagious crises. We argue that contagion is not due to the structure of the interbank deposit market, but to the impossibility to sign contracts contingent on unforeseen contingencies. As long as incomplete contracts are present, the CB may have a useful role in curbing contagion. Moreover, the CB allows the banking system to reach first-best allocation in all the states of the world when the notion of incentive-efficiency is considered. If the analysis is restricted to constrained-efficiency, the CB still avoids contagion without, however, reaching first-best consumption allocation. The model provides a rationale for reserve requirements without the presence of fiat money or asymmetric information.     

The Weekend Eurodollar Game

A growing number of large U.S. banks have used artificial Eurodollar transactions in connection with the heavier weighting of Fridays in the calculation of required reserves to significantly reduce the impact on them of that requirement. This reserve avoidance behavior bestows an unintended and inequitable benefit on those banks engaging in it, unnecessarily increases risks from credit exposures and potentially distorts money stock measures. The incentive for this activity and hence its practice can best be removed by paying interest on required reserves or weighting Fridays equally with all other business days in the reserve requirement calculations.     

A mean-variance framework for analyzing reserve requirements and monetary control

This paper analyzes an ‘almost’ contemporaneous reserve accounting system (ACRA) in which reserve computation and maintenance periods only partially overlap. As a result, banks acquire knowledge of their required reserve obligations prior to the settling period when such reserve requirements become legally binding. Our analysis suggests that the money stock behaves similarly under both ACRA and purely contemporaneous reserve accounting systems as long as banks are risk averse. When banks no longer exhibit risk aversion, the ACRA money stock tends to mimic the behavior of the money stock under a lagged reserve accounting system.     

Excess reserves,monetary policy and financial volatility

This paper examines the real and financial effects of reserves in a Dynamic Stochastic General Equilibrium (DSGE) model with monopoly banking and credit market imperfections. The framework explicitly accounts for the fact that commercial banks hold excess reserves and they incur costs in holding these assets. The model also accounts for imperfect substitutability between bank funding sources and it shows that this feature is an important channel through which reserve requirement shocks can affect real variables. Numerical experiments show that an increase in reserve requirements creates a countercyclical effect for real economic activity. The results also indicate that the combination of an augmented Taylor rule which responds to excess reserves and a countercyclical reserve requirement rule is optimal to mitigate macroeconomic and financial volatility associated with liquidity shocks.     

Payment obligations,reserve requirements,and the demand for central bank balances

We develop a model in which a bank's demand for reserves depends on the joint distribution of transactions, reserve requirements, and the interest rate. By devoting resources to its liquidity management, a bank can save on costly reserves required to settle its payments on time. We test the model with data from the largest banks in the Swiss Interbank Clearing system. We find that the turnover ratio (the speed with which a bank turns over its reserves in the payment system) depends largely on the aggregate value of its payments. We also find that reserve requirements impose a highly uneven burden on the banks.     

Deregulation and oligopolistic rivalry in bank deposit markets

This paper provides a partial equilibrium analysis of a deregulated market for bank deposits in which banks behave oligopolistically but entry and exit are freely permitted. It is demonstrated that the effects of variations in market interest rates, reserve requirements, and bank cost and demand conditions upon the market quantity of bank deposit money are fundamentally altered if the degree of bank rivalry adjusts endogenously. Hence, banking deregulation may produce significant changes in the relationships between these variables and the stock of deposit money.     

International reserves and global interest rates

In this paper we study the relationship between foreign currency international reserve holdings and global interest rates. To guide empirical work we solve a simple, small open-economy model with money, where the central bank manages international reserves to smooth inflation over time. This model shows that changes in interest rates are positively related to the target level of reserves. As a consequence interest rate hikes increase reserve transfers, defined as the change in international reserves net of the interest earned on reserves. Using quarterly data for 75 countries between 2000 and 2013, we document a positive relationship between interest-rate changes and reserve transfers as a share of GDP, that is consistent with the model.     

Equilibrium Dynamics in an Endogenous Growth Model of Money and Banking

We construct an analytically tractable endogenous growth model of money and banking where money provides "liquidity services" to facilitate transactions and banks convert non-reserve deposits into productive capital. We examine both the long- and short-run effects of changes in the money growth rate or the reserve requirement ratio. In response to a change in the required reserve ratio, the inflation rate and the growth rates of capital, real balances, and consumption need not adjust monotonically along the transition path. While the balanced growth equilibrium may be either a saddle or a source locally, the global dynamical system exhibits flip bifurcation.     

基于VAR模型的我国外汇储备、货币供应量与信贷规模关系研究

1994年外汇管理体制改革以来我国外汇储备持续增长,已成为世界上外汇储备最多的国家。巨额外汇储备使得货币供应量增加,银行信贷规模不断扩大。结合2006年至2013年季度数据,基于VAR模型运用协整方法探讨我国外汇储备、货币供应量及银行信贷规模的关系,并通过脉冲响应和方差分解予以进一步分析。结果表明,三变量之间存在长期稳定的均衡关系,外汇储备的增长促进货币供应量的增加,而货币供应量的增加又进一步推动了银行信贷规模的扩张。最后,基于以上分析提出相关对策建议。     

Why do banks promise to pay par on demand?

We survey the theories on why banks promise to pay par on demand and examine evidence on the conditions under which banks have promised to pay the par value of deposits and banknotes on demand when holding only fractional reserves. The theoretical literature is divided into four strands: liquidity provision; asymmetric information; legal restrictions; and a medium of exchange. We assume that it is not zero cost to make a promise to redeem a liability at par value on demand. If so, then the conditions in the theories that result in par redemption are possible explanations why banks promise to pay par on demand. If the explanation based on customers’ demand for liquidity is correct, payment of deposits at par will be promised when banks hold assets that are illiquid in the short run. If the asymmetric-information explanation based on the difficulty of valuing assets is correct, the marketability of banks’ assets determines whether banks promise to pay par. If the legal restrictions explanation of par redemption is correct, banks will not promise to pay par if they are not required to do so. If the transaction explanation is correct, banks will promise to pay par if the deposits are used in transactions. We examine the history of banking in several countries in different eras: fourth century Athens, medieval Italy, Tokugawa Japan, and free banking and money market mutual funds in the United States. Each of the theories explains some of the observed banking arrangements and none explains all of them.