On the use of reserve requirements in dealing with capital flow problems

Reinhart, Carmen; Reinhart, Vincent

doi:10.1002/(sici)1099-1158(199901)4:1<27::aid-ijfe92>3.0.co;2-t

Cited by 88 publications

(54 citation statements)

References 20 publications

(21 reference statements)

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“…On the other hand, Montiel (1996), drawing on a wider sample of Asian and Latin American emerging economies, reports that increases in reserve requirements were important in keeping the size of the money multiplier under control in host countries during the surge period. Similarly, Reinhart and Reinhart (1995) find that increases in reserve requirements (used in developing countries as a tool for sterilising the increase in domestic liquidity arising from foreign exchange intervention) have a noticeable temporary effect both in widening spreads between bank deposits and lending rates and in lowering narrow and broad money expansion.…”

Section: Reserve Requirements Variable Capital Requirements and Othementioning

confidence: 99%

Banking Crises in Emerging Economies: Origins and Policy Options

Goldstein

Turner

1998

SSRN Journal

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Section: Reserve Requirements Variable Capital Requirements and Othementioning

confidence: 99%

Banking Crises in Emerging Economies: Origins and Policy Options

Goldstein

Turner

1998

SSRN Journal

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“…In an early contribution, Reinhart and Reinhart (1999) found indeed that increases in reserve requirements in developing countries tend to raise lending rates and reduce deposit rates, whereas Gelos (2009) (2014), Federico, Végh and Vuletin (2014), and Glocker and Towbin (2015), all found that increases in reserve requirements tend to mitigate the expansion of credit in Latin America. In effect, during the recent global financial crisis, reserve requirements were used as a substitute for monetary policy, not only to curb lending growth but also to dampen inflationary pressures.…”

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confidence: 99%

Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Silva¹,

Agénor²

2016

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 Abstract * This paper discusses, from an analytical and operational perspective, the use of reserve requirements and loan loss provisions as countercyclical macroprudential instruments. In recent years both of these instruments have been used extensively in Latin America and elsewhere in the world. The first part of the paper sets the stage with a discussion of the rationale, in the presence of financial frictions, for using macroprudential regulation to mitigate financial system procyclicality. The second part reviews the general arguments, as well as the recent empirical evidence for Latin America, associated with the use of reserve requirements and loan loss provisions. The third part provides a normative analysis of the ways through which countercyclical reserve requirements and cyclically adjusted (or, more commonly called, dynamic) provisioning rules should be formulated, independently and jointly, to address concerns arising from procyclicality and financial volatility. Optimal countercyclical rules are discussed from the perspective of how these rules can either minimize a composite measure of economic volatility (combining measures of both macroeconomic and financial volatility) or maximize social welfare. The last part brings together the lessons for policymakers that can be drawn from the analysis. JEL classifications: E51, E58, G28

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“…Lim et al (2011), Borio and Shim (2007) Reserve requirements are often employed by the regulators in the emerging markets as a macroprudential tool. Reinhart and Reinhart 1999, Montoro and Moreno 2011, Terrier et al 2011 suggest that regulators prefer to very reserves requirements to tap credit supply rather than increase the interest rates as the later might attract capital inflows and lead to depreciation of the domestic currency. 10 Mora (2014) exploits an increase in reserve requirements in Lebanon which disproportionally affected deposits denominated in different currencies'.…”

Section: Datamentioning

confidence: 99%

On a Tight Leash: Does Bank Organisational Structure Matter for Macroprudential Spillovers?

2015

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This paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks' foreign affiliates. Our analysis compares the response of foreign banks' branches versus subsidiaries in the UK to changes in macroprudential regulations in foreign banks' home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks' decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth in the UK by 6.3pp more relative to subsidiaries of the same banking group. Lending to non-bank borrowers does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the UK. Keywords AbstractThis paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks' foreign affiliates. Our analysis compares the response of foreign banks' branches versus subsidiaries to changes in macroprudential regulations in foreign banks' home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks' decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth in the UK by 6.3pp more relative to subsidiaries of the same banking group. Lending to non-bank borrowers does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the UK.

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On the use of reserve requirements in dealing with capital flow problems

Cited by 88 publications

References 20 publications

Banking Crises in Emerging Economies: Origins and Policy Options

Banking Crises in Emerging Economies: Origins and Policy Options

Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

On a Tight Leash: Does Bank Organisational Structure Matter for Macroprudential Spillovers?

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