Narrow Banking with Modern Depository Institutions: Is There a Reason to Panic?

Hugo Rodriguez Mendizabal

International Journal of Central Banking, 2020, vol. 16, issue 4, 145-197

Abstract: What would be the effect of imposing a 100 percent reserve requirement to depository institutions? This paper contends that reserves do not compete with loans on the asset side of banks' balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions.

JEL-codes: E4 E5 G21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Working Paper: Narrow Banking with Modern Depository Institutions: Is there a Reason to Panic? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2020:q:3:a:4

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