In What Sense Do Compulsory Ratios Reduce the Volume of Deposits?

  • Anthony S. Courakis
Part of the Studies in Monetary Economics book series (STUDMOECO)

Abstract

Except for possible positive ‘psychological effects’ stemming from increased confidence by depositors in the solvency of controlled institutions, the general view in the literature is that compulsory cash/securities/or other ratios reduce the equilibrium volume of deposits. Often this outcome is conceived in terms of settings where compulsory ratios are assumed to be combined with control (rationing) by the authorities of the supply of assets that the intermediaries are compelled to hold in fixed proportion to their deposits, in order to impose a limit on deposits below the level that could otherwise materialise.1 But even those writers on this subject who assume no such ‘compulsory asset availability constraint’ reach the same verdict, since they see compulsory ratios as reducing the return per unit of deposits accruing to controlled intermediaries, and hence the rate that these intermediaries are willing to pay on deposits.2 In the latter vein, furthermore, it has become increasingly fashionable to think of compulsory ratios as a tax;3 and, whether in the context of highly-developed, or in the context of less-developed, economic systems, also to proclaim the undesirability of such devices.4

Keywords

Income Sine Argentina Librium Rium 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Artis, M. J. and Lewis, M. K. (1981) Monetary Control in the United Kingdom (Oxford: Philip Allan).Google Scholar
  2. Baltensperger, E. (1980) ‘Alternative approaches to the theory of the banking firm’, Journal of Monetary Economics, 6: 1–37.CrossRefGoogle Scholar
  3. Barro, R. J. (1976) ‘The loan market, collateral, and rates of interest’, Journal of Money, Credit and Banking, 8: 439–56.CrossRefGoogle Scholar
  4. Black, F. (1970) ‘Banking and interest rates in a world without money’, Journal of Bank Research, 1: 19–20.Google Scholar
  5. Brainard, W. C. (1964) ‘Financial intermediaries and a theory of monetary control’, Yale Economic Essays, 4(1). Reprinted as Chapter 4 in Hester, D. and Tobin, J. (eds) (1967) Financial Markets and Economic Activity (London: Wiley) pp. 94–141.Google Scholar
  6. Campbell, T. S. and Kracaw, W. A. (1980) ‘Information production, market signalling and the theory of financial intermediation’, Journal of Finance, 35: 863–82.CrossRefGoogle Scholar
  7. Clark, J. A. (1984) ‘Estimation of economies of scale of banking using a generalised functional form’, Journal of Money, Credit and Banking, 16: 53–68.CrossRefGoogle Scholar
  8. Coats, W. L. and Khatkhate, D. R. (1980) ‘Money and monetary policy in less developed counries: survey of issues and evidence’, in Coats, W. L. and Khatkhate, D. R. (eds) Money and Monetary Policy in Less Developed Countries (Oxford: Pergamon Press).Google Scholar
  9. Courakis, A. S. (1973) ‘Monetary policy: old wisdom behind a new facade’, Economica, 40: 73–86.CrossRefGoogle Scholar
  10. Courakis, A. S. (1980) ‘In search of an explanation of bank short-run portfolio selection’, Oxford Bulletin of Economics and Statistics, 42: 305–35.CrossRefGoogle Scholar
  11. Courakis, A. S. (1981a) ‘Banking policy and commercial bank behaviour in Greece’, in Veirheirstraeten, A. (ed.) Competition and Regulation in Financial Markets (London: Macmillan Press) pp. 220–64.CrossRefGoogle Scholar
  12. Courakis, A. S. (1981b) ‘Financial structure and policy in Greece: retrospect and prospect’, The Greek Economic Review, 3: 205–44.Google Scholar
  13. Courakis, A. S. (1984a) ‘Constraints on banks’ choices and financial repression in less developed countries, Oxford Bulletin of Economics and Statistics, 46: 341–70.CrossRefGoogle Scholar
  14. Courakis, A. S. (1984b) ‘On the rationale and implications of constraints on the choices of deposit-taking financial intermediaries (with particular reference to seven European economies)’, in Fair, D. E. and Leonard de Juvigny, F. (eds) Government Policies and the Working of Financial Systems in Industrialized Countries (Dordrecht: Martinus Nijhoff).Google Scholar
  15. Courakis, A. S. (1985) ‘The public finance dimension of bank regulation’, Brasenose College, mimeo.Google Scholar
  16. Crick, W. F. (1927) ‘The genesis of bank deposits’, Economica, 191–202.Google Scholar
  17. Diamond, D. W. (1984) ‘Financial intermediaries and delegated monitoring’, Review of Economic Studies, 54: 339–414.Google Scholar
  18. Fama, E. F. (1980) ‘Banking in the theory of finance’, Journal of Monetary Economics, 6: 39–58.CrossRefGoogle Scholar
  19. Fama, E. F. (1985) ‘What’s different about banks?’ Journal of Monetary Economics, 15: 29–39.CrossRefGoogle Scholar
  20. Fry, M. J. (1978) ‘Money and capital or financial deepening in economic development’, Journal of Money, Credit and Banking, 9: 464–75.CrossRefGoogle Scholar
  21. Gilbert, R. A. (1984) ‘Bank market structure and competition: a survey’, Journal of Money, Credit and Banking, 16: 617–44.CrossRefGoogle Scholar
  22. Goodhart, C. A. E. (1984) Monetary Theory and Practice: the UK Experience (London: Macmillan Press).CrossRefGoogle Scholar
  23. Goodhart, C. A. E. (1985) ‘The implications of shifting frontiers in financial markets for monetary control’, presented to the 1985 Société Universitaire Européenne de Recherches Financières (SUERF Colloquium) Cambridge, England, March 1985 (forthcoming in Fair, D. E. and Leonard de Juvigny, F. (eds) (1986) Shifting Frontiers in Financial Markets (Dordrecht: Martinus Nijhoff).Google Scholar
  24. Greenbaum, S. I. and Kellogg, J. L. (1983) ‘Legal reserve requirements: a case study in bank regulation’, Journal of Bank Research, 13: 59–69.Google Scholar
  25. Gurley, G. J. and Shaw, E. S. (1960) Money in a Theory of Finance (Washington, D.C.: Brookings).Google Scholar
  26. Hart, O. D. and Jaffee, D. M. (1974) ‘On the application of portfolio theory to depository financial intermediaries’, Review of Economic Studies, 41: 129–47.CrossRefGoogle Scholar
  27. International Monetary Fund (1983) Interest Rate Policies in Developing Countries, IMF Occasional Paper, 22.CrossRefGoogle Scholar
  28. Jaffee, D. M. and Russell, T. (1976) ‘Imperfect information, uncertainty and credit rationing’, Quarterly Journal of Economics, 90: 651–66.CrossRefGoogle Scholar
  29. Johnson, H. G. (1968) ‘Problems of efficiency in monetary management’, Journal of Political Economy, 76: 971–90.CrossRefGoogle Scholar
  30. Johnson, O. E. G. (1974) ‘Credit controls as instruments of development policy in the light of economic theory’, Journal of Money, Credit and Banking, 5: 85–99.CrossRefGoogle Scholar
  31. Kane, E. J. and Buser, S. A. (1979) ‘Portfolio diversification at commercial banks’, Journal of Finance, 34: 19–34.CrossRefGoogle Scholar
  32. Leland, H. E. and Pyle, D. H. (1977) ‘Informational asymmetries, financial structure and financial intermediation’, Journal of Finance, 32: 371–87.CrossRefGoogle Scholar
  33. Llewellyn, D. T. et al. (1982) The Framework of UK Monetary Policy (London: Heinemann).Google Scholar
  34. McKinnon, R. (1981) ‘Financial repression and the liberalisation problem in less developed countries’, in Grassman, S. and Lundberg, E. (eds) The Past and Prospects for the World Economic Order (London: Macmillan Press) pp. 365–86.CrossRefGoogle Scholar
  35. McKinnon, R. I. (1982) ‘The order of economic liberalisation: lessons from Chile and Argentina’, Carnegie Rochester Series on Public Policy, Journal of Monetary Economics, 17 (supplement): 159–86.Google Scholar
  36. McKinnon, R. I. and Mathieson, D. J. (1981) ‘How to manage a repressed economy’, Princeton Essays in International Finance, 145.Google Scholar
  37. Monti, M. (1971) ‘A theoretical model of bank behaviour and its implications for monetary policy’, L’Industria, No. 2.Google Scholar
  38. Monti, M. et al. (1983) ‘Report on the Italian credit and financial system’, Banca Nazionale del Lavoro Quarterly Review, special issue, June.Google Scholar
  39. Mullineaux, D. J. (1978) ‘Economies of scale and organisational efficiency in banking: aprofit function approach’, Journal of Finance, 33: 259–80.Google Scholar
  40. Pesek, B. (1970) ‘Bank’s supply function and the equilibrium quantity of money’, Canadian Journal of Economics, 3: 357–85.CrossRefGoogle Scholar
  41. Philips, C. (1923) Bank Credit (London: Macmillan Press).Google Scholar
  42. Pyle, D. H. (1971) ‘On the theory of financial intermediation’, Journal of Finance, 26: 737–47.CrossRefGoogle Scholar
  43. Santomero, A. M. (1984) ‘Modelling the banking firm: a survey’, Journal of Money, Credit and Banking, 15: 576–616.CrossRefGoogle Scholar
  44. Sealey, C. W. (1980) ‘Deposit rate setting, risk aversion, and the theory of depository financial intermediaries’, Journal of Finance, 35: 1139–54.CrossRefGoogle Scholar
  45. Sealey, C. W. and Lindley, T. (1977) ‘Inputs, outputs and the theory of production and cost at depository financial institutions’, Journal of Finance, 32: 1251–66.CrossRefGoogle Scholar
  46. Shaw, E. S. (1973) Financial Deepening in Economic Development (Oxford: Oxford University Press).Google Scholar
  47. Spencer, P. D. (1982) ‘Bank regulation, credit rationing and the determination of interest rates’, Manchester School, 50: 41–60.CrossRefGoogle Scholar
  48. Spencer, P. D. (1984) ‘Precautionary and speculative aspects of behaviour of banks in the UK under CCC’, Economic Journal, 94: 554–68.CrossRefGoogle Scholar
  49. Stanhouse, B. and Sherman, L. (1979) ‘A note on information in the loan evaluation process’, Journal of Finance, 34: 1263–9.CrossRefGoogle Scholar
  50. Stiglitz, J. E. and Weiss, A. (1981) ‘Credit rationing in markets with imperfect information’, American Economic Review, 71: 393–410.Google Scholar
  51. Tobin, J. (1963) ‘Commercial banks as creators of “money”’, in Carson, D. (ed.) Banking and Monetary Studies (Irwin), pp. 408–19. Reprinted in Hester, D. and Tobin, J. (eds) Financial Markets and Economic Activity (London: Wiley) pp. 1–11.Google Scholar
  52. Towey, R. E. (1974) ‘Money creation and the theory of the banking firm’, Journal of Finance, 29: 57–72.CrossRefGoogle Scholar
  53. Wills, H. R. (1982) ‘The simple economics of bank regulation’, Economica, 49: 249–59.CrossRefGoogle Scholar

Copyright information

© The Money Study Group 1987

Authors and Affiliations

  • Anthony S. Courakis

There are no affiliations available

Personalised recommendations