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

Jonathan D. Stewart and Scott Hein

Journal of Financial Research, 2002, vol. 25, issue 3, 367-382

Abstract: 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.

Date: 2002
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