Reserve requirements, bank share prices, and the uniqueeness of bank loans

Osborne, Dale K.; Zaher, Tarek S.

doi:10.1016/0378-4266(92)90009-o

Cited by 20 publications

(20 citation statements)

References 26 publications

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“…According to our VR test results, which find that the impact of monetary policy on stock prices is limited in the A-market over this sub-period, we interpret our results to indicate that increases in RRR lead to reductions in banking and finance stock prices. This conclusion is consistent with the tax burden effect of reserve requirements described in previous studies (Kolari et al, 1988;Osborne and Zaher, 1992). The negative patterns in differences between coefficients for A-and H-shares are weaker during the third sub-period.…”

Section: Empirical Findingssupporting

confidence: 93%

The impact of monetary policy on banking and finance stock prices in China

Kim

Lee

et al. 2014

Applied Economics Letters

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In this study, we examine the impacts of changes to the required reserve ratio (RRR) on banking and finance stock prices in China from 2007 to 2012 using multiple variance ratio tests and vector error correction models. The efficient market hypothesis is rejected during the earlier increases in required reserve ratio (2007)(2008) in the Shanghai A-market, and A-share prices negatively respond to increases in RRR. In contrast, both Shanghai A-and Hong Kong H-markets are efficient, and negative effects of RRR are not clearly observed during periods of stable RRR (2009RRR ( -2010 and during a recent increase in RRR (2010RRR ( -2012.

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Section: Empirical Findingssupporting

confidence: 93%

The impact of monetary policy on banking and finance stock prices in China

Kim

Lee

et al. 2014

Applied Economics Letters

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“…The general evidence for the two-day period of December 4 and 5 suggests a delayed response of large bank stock prices to the news of the reserve requirement change. Although this evidence is unexpected, it is similar to evidence found by Osborne and Zaher (1992) for earlier reserve requirement changes, as they also uncover evidence of a one-day delayed response to many earlier announcements. Large stock prices appear to react as much on the day following the announcement as on the day of the announcement itself.…”

Section: The 1990 Reserve Requirement Change and Bank Share Price Reasupporting

confidence: 79%

“…This empirical evidence appears more consistent with the Cosimano-McDonald monopolistic competition framework than the Fama perfect competition framework. Kolari, Mahajan, and Saunders (1988), Slovin, Sushka, and Bendeck (1990), and Osborne and Zaher (1992) find evidence of abnormal stock returns around the time of unexpected, permanent reserve requirement changes. These studies consider reserve requirement changes in the United States before the 1990 change.…”

Section: Commercial Bank Stock Returns and Reserve Requirementsmentioning

confidence: 98%

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

Stewart

Hein

2002

J of Financial Research

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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. The Southern Finance Association and the Southwestern Finance Association.

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“…However, as pointed out by Rajan (1992), the bank has an incentive to "behave" with its old customers to get in on subsequent projects. Evidence provided by James (1992) on investment banks is consistent with this view: the underwriter spread was significantly lower in the initial public offerings in which the issuing firm made a subsequent equity offer, and the customer was the more likely to switch the poorer the investment banker's prior pricing performance (see also Boyd and Prescott (1986), Diamond (1984Diamond ( , 1991, Diamond and Rajan (2001), Fama (1985), Flannery (1983), Lummer and McConnell (1989), and Osborne and Zaher (1992)). …”

Section: Introductionsupporting

confidence: 61%

The New Theory of Commercial Banking and Bank Lending Behavior

Ahtiala

2005

Scottish J Political Eco

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The paper studies the bank's lending decision, based on three observed phenomena: Banks earn substantial profits from off-balance sheet activities and services, which they take into account in their lending decisions. Secondly, the critical point in the customer relation is the loan decision: the probability of the customer staying with the bank is a function of the loan extended each time one is applied for. Third, what is at stake in the loan decision is the expected value of the entire customer relation, which is the probability times the present value of expected future profits. The bank is a maximizer of this expected present value, while making decisions on individual loan applications. It is shown that the bank is in a corner solution with respect to its good customers, and other customers often have an incentive to get to a corner. Therefore corner solutions may be the rule rather than the exception in the bank's customer relations, and there is no mechanism making the bank indifferent, at the margin, between lending to different customers. It can be optimal to extend loans to (present and expected future) good customers at an interest rate loss.A rationed customer with concave enough a probability function can get a bigger loan by asking for less. Loyalty increases the customer's value to the bank but improves its loan terms only if the customer makes it conditional on the loan extended.JEL classification numbers G21, E51

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Reserve requirements, bank share prices, and the uniqueeness of bank loans

Cited by 20 publications

References 26 publications

The impact of monetary policy on banking and finance stock prices in China

The impact of monetary policy on banking and finance stock prices in China

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

The New Theory of Commercial Banking and Bank Lending Behavior

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