Article
Solvency v Competition. Hobson's Choice for the Fed
Journal of International Money and Finance
(2007)
Abstract
I demonstrate several propositions about U.S. banking. Required reserves do not enhance bank safety; they only place an upper bound on some bank deposits. 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 moving against the tide. Reserve requirements constrained competition among banks until 1992 when major legal changes eliminated them in practise. Federal Funds Rates became a signal reducing competition among member banks of the Federal Reserve System. Now short term interest rates and the Federal Funds Rate move in lock step. This reduces competiton among banks
Keywords
- Monetary Policy,
- Federal Reserve
Disciplines
Publication Date
2007
Citation Information
Lester G Telser. "Solvency v Competition. Hobson's Choice for the Fed" Journal of International Money and Finance Vol. 26 Iss. Nov (2007) Available at: http://works.bepress.com/lester_telser/3/