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79-7 RESERVE REQUIREMENTS, DEPOSIT INSURANCE AND MONETARY CONTROL Robert D. Laurent m O m 70 > r~ 70 m Ln m 70 < m CD > Z 7^ 0 -n n x n > o o Reserve Requirements, Deposit Insurance and Monetary Control by Robert D. Laurent Department of Research Federal Reserve Bank of Chicago The views expressed herein are solely those of the author and do not necessarily represent the views of the Federal Reserve Bank of Chicago or the Federal Reserve System. The material contained is of a prelimi nary nature, is circulated to stimulate discussion, and is not to be quoted without permission. Reserve Requirements, Deposit Insurance and Monetary Control Reserve requirements are usually justified on grounds that they enhance the monetary authorities1 control over monetary aggregates. Using reserve requirements to control a monetary aggregate has long posed a problem for economists in devising an institutional structure in which to operate monetary policy. Higher reserve requirements give more accurate control over the target monetary aggregate, but they impose higher taxes on banks and bank customers. Building on a reserve computation system presented earlier, this paper proposes a change in institutional structure that essen tially merges the monetary policy functions of the Federal Reserve with the deposit insuring authority of the Federal Deposit Insurance Corporation. The proposed system would provide accurate weekly con trol over the target monetary aggregate while completely eliminating the reserve requirement tax. The proposal would also simplify banks1 portfolio and reserve management tasks and help insulate the target monetary aggregate from replacement in the publicfs demand function by other financial assets. Aside from the benefits of an improved monetary policy, banks, bank customers, and taxpayers would receive direct pecuniary benefits. Finally, the proposal would simplify (and provide a compelling economic rationale for) the role of govern ment in the financial system. These benefits would be obtained with out any additional compulsory measures. The paper is divided into four sections. The first reviews the problem of reserve requirements and monetary control and previous proposals to deal with it. The second describes the proposed system. The third provides the economic rationale for the role of government in the proposed system. The final section describes bank techniques of reserve management under the proposed system. The Problem It has long been recognized that reserve requirements affect the ability of the central bank to control any given target monetary aggregate. Generally, the higher the reserve requirements, the more accurate is control over the target aggregate. A simple way to per ceive the effects of different reserve requirements ratios begins by noting that the higher reserve requirements, the lower the multi plier between reserves and deposits. By reducing the multiplier between reserves and deposits, higher reserve requirements reduce the size of the disturbances to deposits caused by aberrations in reserves. More importantly, the higher are reserve requirements, the lower and presumably less volatile are excess reserves. Banks hold less excess reserves because higher levels of reserve requirements reduce the deficiency resulting from a deposit outflow. The less volatile are excess reserves, the more predictable is the relationship between reserves and money and the better the control over money. - 3 - Higher reserve requirements act as a tax on banks and bank customers. Banks essentially economize on currency. They offer depositors a convenient, safe, and economical way to perform trans actions without physically transferring currency. In addition, be cause banks need reserve levels that are only a fraction of deposits, they are able to pay interest on deposits. These interest payments on deposits are a benefit of the technological innovation banking represents. In a world of commodity currency, these interest payments reflect the physical resources saved in economizing on the commodity currency (e.g., the real resources consumed in mining gold). In a world of fiat currency, these real resources are already saved in the production of currency. With fiat currency, deposit interest, which represents one benefit of banking, is a transfer from government to deposit holders. To control a monetary aggregate effectively, reserve requirements should be higher than banks would voluntarily hold. This is necessary so as to have banks’ excess reserves close to zero and, therefore, predictable.^ The higher reserve requirements are raised above the voluntary level, the closer excess reserves move to zero and the more predictable the relationship between reserves and deposits. But, the higher are reserve requirements, the greater the tax on deposits and the smaller the interest payments to depositors. There is nothing unique about the relationship between government and the banking industry that justifies a government tax on banking. Banks can exist alongside commodity currency and without government chartering as well 4 as with government fiat justification for to control accurately One's reserve one attaches importance in against by a the f o r m of of deposits. Henry C. slightly different control over demand afford to demand deposits In pay policy reserve is n o t measures an imposed but one and to demand that, such views, reserve at the mo n e t a r y the target on need authorities the one believes if important, for (e.g., is little if m o n e t a r y in 1930s in percent very accurate could still How not accept and these safety services. opposing view that m o n e t a r y rates). gained policy the advanced implemented interest require of banks either it great prominent convenience payment importance aggregate. could and Reserve One hundred if requirements the reserve subsequently Banks be the place the mos t a diametrically there would by circulated reserves, with require aggregates on Federal monetary deposits. hold The control percent first was who the economists.^ easily requirements) 100 economists, depositors could was proposal they would or reserves economize than monetary with by give simply determined economists proposal other provide important other economist tax and on and The deposits to b e advocated Chicago by ability transfers, (eliminate of would interest contrast, cash tax rests between monetary Some have chartering. aggregate. off likely This forms requirements the is Simons.^ reserve trade control vault government monetary control. University without the tax to m o n e t a r y demand check on and requirement target requirement wh o m was of a on monetary group ever, reserve preferences the ments the currency is from not through For the effective. - 5 - Similarly, reserve for requirements An important requirement effect a monetary of was by Milton on this system would reserve posits The on reserves the problem major the reserves. pensate higher the for reserves target free remains one of m o n e t a r y the be and h o w not a market along is to the the the to specifics ensure of each lower how out.^ to on of ag the de interest Paying interest resolving difficulty tax. of One deter holding bank would just com requirements. Any payment would interest would control proposal, offset that for cost of monetary requirement reserve accurate spelled insure pay entry interest proposals to of m e e t i n g any target of the free requirement rates offset payment with tax proposals elimination serve practical the government would reserve reserve these depositors. viable and needed precisely the banking would subsidy, the over reserves into cost this w o u l d been on interest additional would control proposal the of reserve control Ideally, proposed percent the most payment familiar rates, eliminate that 100 passed interest to suggested also Allowing of effort interest percent combined payment entry 100 on deposits accurate were In addition, have basic tax.^ reserves payment tax. payments through the In an the m o s t interest the 1940s. to Perhaps give problem with mining added it w a s the requirement payments on Like along with the was Friedman,-* w h o interest banking. superfluous.^ reserves, reserves. into gregate. in percent on controls seem refinement interest made implemented would proposal 100 policy over not be eliminate paid on the m o n e t a r y - 6 - The Proposal This monetary a paper control reserve based matches week. accurately works of no the match operation and keep the reserves set s o l u t i o n to requirement referred two w e e k s The matter different system presented in w h i c h required a reserve system, deposits previous to This system on and computation article.® present proposes weekly by the the before. Under the lag current system required low the level of the reverse author in an lag, week reverse to allows its meet lag, the mon e t a r y of requirements. is equal that to it its is in it The a bank reserves the authorities importantly, allows the a bank reserves Most reserve earlier reverses a bank must the of solution uses reserves. lag reserves problem This reverse reserves how required as taxes. required in reverse to the essence to easily in the previous translate the reverse week.9 The l a g ’s problem control weekly problem of of different to force with a over control necessity every is those bank imposing tax on banks. so over setting from that available. with required deposits simply sharply dealt a this of at reserve banks. the uniform same reserve reserve tax would is a to system aggregate. non-member member to m e e t into monetary appropriate held paper reserves target Granted, the in with obvious reserve accurate from reserve solution requirements But is could a much that be the there is the requirements is requirements. requirements be minimal. Aside r e q u i r e m e n t s , 10 banks An giving somehow The this reduced better problem imposes quite solution - 7 - The is p r o b l e m of essentially reserve the that banks requirements target monetary sate banks a benefit there monetary for the deposit be insurance, Corporation. It is great be Federal Deposit Insurance tax while control can be the a target eliminated are requirement tax be (not transformed deposit in insurance of premium deposit insurance in payment (and for 1/3 of deposit the an deposits) to banks. would insurance would insurance.H level interest banks bank allow the for w h i c h of of the the complete requirement reserves reserve is Insurance into requirements deposit insurance the reserve aggregate. 1/30 of insurance. that yields rates of the 10%, amount as presently paying for instead 1% This same be willing exists benefit the reserve pre m i u m of deposit compen functions replace monetary annual with to and Deposit in w h i c h of already This required Present to authority and tax control provide insuring form for there policy over to something Federal This requirement Any do) is of the target insurance. deposit part by the cost all the control changing the authority requirements 1% w o u l d almost imposition qualified aggregate. Thus, for Fortunately, deposit reserve reserve requirement the m o n e t a r y the pay reserve needed Corporation. banks charges. requirement for with allows insured a on that monetary insured into is provided controlling just benefit What translating because collected Presently, deposits present effectively over charges merged the the m o n e t a r y demand proposed Reserve of no uniquely presently is and requirements. Federal elimination allow aggregate. reserve to receive that government appears control a of all would same reserve the present to h o l d deposit reserves - 8 - Monetary Banks holding deposits lag policy would reserves with that computation their are reserve matching entire requirements, over the while system, of control target the be tax the tions might the seem for monetary tax, present and without of Given This adding any But, first. the elimination even of a number of attractive aspects important, the proposal is consistent with in the financial Why ance are are But not There is there and are by insured? holders many the reserve to control achieved requirements and the compulsory measures aside a simplifying insuring from reserve to the benefit the merger. the func requirement compelling economic A facile answer from losses in financial assets held government— stock holdings an for Most economic role of government would be that system. deposit insured holdings, improving deposits protects ure. both been deposit the are for banks reserves has new and there rationale insured to Government strange and reserves equivalent reserve issuing control is for reverse appropriate control g o v e r n m e n t ’s m o n e y at all required reserves the required Since control. in reserves. insurance Under match week. aggregate. eliminating deposit reserves, required changes reserves. easily to under Role Merging can previous over through purchasing required reserves monetary requirement conducted banks system are completely reserve in required banking would level level be and insurance some rationale for the event by the policies, pension deposit funds, of Keogh insurance bank public real insur fail that estate, Plans, that uses bond and the IRAs - 9 - same are reasoning imposed monetary underlying to give the m o n e t a r y aggregate. Presumably, related to m a c r o e c o n o m i c natural that under deposits deposit individual failures the does failure were be provided insurance such as the possibilities What insuring the event of If be it been service this authority, such all— would be in a made is a by capable Under available factor that concerns— eliminated. indeed If the over of the However, bank could against that in it governmental the adequacy the deposit for is agency depositors insuring necessity such provide. requirement powers deposit failures, government additional creating bank probably arrangement, deposit be every bank insurance the seems economy. could reimbursing present actions the money and of emergency, to by critical the concern in past had possessed It is to p r o t e c t the of w i d e s p r e a d government the most serious clear agency be only be not on insurance deposit aggregate aggregate institutions. Providing target widespread insurance? situation a economy. insured prevent deposit that the contraction deposit should are to private in a failure. would rather event, Certainly, that deposits provide Depression. a target a monetary a bank likely has but agency Nevertheless, because insuring of resources agency. monetary critical deposits? deposit serves the characteristics the appears in holders, seems a monetary included efficiently Great over requirements over to independent is m o s t control control importance effects more authorities Reserve of government an requirements. goals insurance, deposit and Why reserve agency. of its re insuring of a the m o n e t a r y reserve at - 10 - What Again, bank factors if every bank. a prime ance. The economic risk of subject bank of a merger for m o n e t a r y ment for has portant an policy the of the m o n e t a r y involved the costs The for and an authority the the that be is of whose deposit deposits, important it appears suggests least deposit is impact important economic and agency is of that activity, Govern the most im the m o n e y - because determinant agency. ^ functions insurance. insurance, reasonable in part, insuring on deposit to attractive thought Finally, the insuring of the insur reasonable at a failures deposit deposit insuring bank of of in d e t e r m i n i n g a number by risk failures seems the their authority. an it and protected deposit bank control of the government are insurance? characteristics role on creating providing event responsible there because the is deposit of w i d e s p r e a d case, effects deposits for the important which the m o n e t a r y insuring the behavior the risks it share in benefits. proposal a monetary One m ajor in to reasons in by of w i d e s p r e a d being purposes same solely the m o ney same advantage power play argued characteristic creating of The independent possibility authority of an in prov i d i n g establishment This conditions, government. should, the conditions section has to the occurrence the m o n e t a r y This aspects for failure. economic risk determined However, periodic the failure were be motive that for bank failure would individual was determine presented policy problem at here operating present, has another through even given very control of accurate important advantage a monetary control over aggregate. the 11 - target For aggregate, example, ally defined goods and money market can of serve how the one by is including services. same role explosion lished. Interest rate fective, while into monetary there would gate. that is There serves exempt types as policy. the of no have But same an of accounts, a interest in step would deal if removing the deals exclusively with the ap p r o p r i a t e level of for tax the rate the of to on improve and and inef confusion were an target reserve of ceilings. controls the pub interest removed, target monetary Linking eliminates paper of has on various as m u c h creation components requirements.*^ insurance the of proliferation inefficient, rate the result aggregates uncertainty interest for One explicit interest controlling as charges of do that question controls of for accounts, the the rate inequitable, incentive tax by for origin agreements monetary reason was quasi-deposits the p r o h i b i t i o n great ATS raised and of (M-l) purpose. different single even has aggregate. exchangeable repurchase original been been function deposit NOW elimination a problem always readily deposits of aggregate assets principal total introducing remain its particularly the target monetary deposits of has Probably requirement This the deposits controls is demand satisfies from reserve the purchase reserve as the number categories, the corporate in deposit policy and new surrogate monetary those appearance Unquestionably, deposits. all of various of target monetary funds, accurately M-l an demand The mutual the integrity potential proliferation been the aggre instrument aggregate requirements incentive to avoid but to the itself. form and deposit ignores insurance. It completely is possible 12 - that a might It set not of be suffices simply. Since levels is it reserve no low control over insurance on appropriate on some show the is with that reverse than the any deposit insurance deposits could to cost the monetary the an to the purchased can be through both of re rela any for achieved deposit by imposing deposit required at deposit Having level Thus, quite aggregate, for charge optimal deposit. set charge. the aggregate. low reserve monetary insurance the how insurance determined, resolved appropriate target deposit raised target matter aggregate, premium on be however conflict find deposit monetary is to of insurance, w o r k no control optimal target over potential lag will the the deposit possible requirements that for control any always enough higher charges consistent to quirements, tive optimal the insurance reserves and premium payments. Reserve Management One for a tioned If in outflow at low the one reverse reserve end settlement of Since week with to the under its pose three solutions unusual, would improve are very is appear its requires requirements requirements least beyond lag p a p e r ) , it reserves. would the reserve this at reserves ves of system with paper. tive aspect present a possible the reserves grave for this interbank functioning. like low that week reverse the problem a more elaborate that (e.g., proposed the a bank with could lag, end 1/3 a in of this 1% men severe deposit the w e e k w i t h a bank must preceding week, for exposition a bank. the match required negative However, nega reser there problem. One of solutions, adjustment and reserve management are though - 13 - First, actions week, to notice eliminate the problem the week. Notice entire banking problem. close any though third it negative reserves that in to the previous solution is m u c h possible for reserve requirement are subtracted its held to by the bank can "due Federal that has achieve with fewer are funds more since the deficient for the surplus equilibrium than the subtracted for to market deposits deposits as is This a in the only trans settlement at the end negative for the two solutions to Federal funds after week a way of as allow banks a bank to of the the elimi trade are of for deposits to" as in for the in "due added through the than an past deposits alternative at A allow a bank demand funds to deposits required deposits Federal its both banks from" banks deposits week name move to other adjustment. its computing deposits adjustment in deposits both from" suggests interbank deposits negative greater deposits These ndue Strange system and negative can have reserves serve substitute deposits banks superior. computation to h a v e a bank its paying "due reserve a method than probably arrangement allowed. and and Since This from demand bank for other deposits bank. and at trade would present deposits, public. equilibrium by equilibrium, that deposits non-bank the purposes. from demand from" the is go settlement different it lag, not funds week. both reverse the occur suggest to Another under the if of Federal earlier would could allow banks end use levels conditions reserves. the seems, reserves These be at could reserve system. negative held because banks negative also business reserves A of One would of nating that moves reserves deposits the market in banks the - 14 - present makes lagged bank reserve adjustment entire banking change reserves). reserve funds through loan. Lending borrowing bank borrowing banks. eral and for worthiness can be drawn the only and a dependence A ments is reserves. negative negative. the risk reserves, its by on the or to the banks deposits a the This deposit Interbank the deposit bank aggravated by the low clearing authorities prohibit banks phenomenon, frequency allow a dubbed in recent bank's "daylight years. the should lending not simplifies credit intraday a system the negative the day with reserves overdrafts", Ideally, require (whether from ending the deficiency. reserve in a l l o w i n g bank be with considering of Fed additional adjustment institution house) do the b a n k ’s c r e d i t reducing level clearing they from an the approved its the a private but of of eliminates of the unsecured funds market, identity for of an off because the ne c e s s i t y Federal cut provides that Federal lists borrowing is advantage worthiness have are (the cannot A through credit difficulty where it important reserves that ignored. books— one since funds market. to interbank removing involved Monetary This of maturity. problem authority greater on of deposits system adjustment has Federal transfer adjustment contrast rates remaining monetary with in the Interbank deposits, deposits surprising essentially process through financial use specific and of in through banking indifferent is n o t The deposit adjustment the not interbank with worthiness, are it funds market. grants through Banks instrument adjust involves banks with interbank adjustment transaction Adjustment consistent system must Adjustment over system. has to go occurred should be - 15 - designed since to give negative aggregate) and Treasury the reserves yet solution would as banks be remove to bills, as value securities protect the allowing Allowing collateral proposal ments. of banks insurance see w hy bank a this holds week So and it has reserves to a reserves control happen, consider reverse reserve requirement that outside factors no incentive following to the wee k week. and as any that, than why to to very the while even system in it above, reserve hold against it can a absence deposit reserves. way both beginning deficient require aggregate? cheapest the the The proposal, for a bank knows at reader. the required the acceptable low reserve under banks them make This would with the m o n e t a r y reserves noted come occur deficiency cannot hold Indeed, lag the failure, positions reserves over it b e l i e v e s of reserves. may possible such reserves. extent from bank reserve disrupt the loss hold the One securities, collateral.-^ system with voluntarily it as monetary institution. negative to (especially target acceptable only negative that the possible against any within deposit deposited of of reserves clearing reserves describes Is negative the against question because Under reserves a to negative hold more not reserves. the had cover would thereby required in to to will risk institution paper banks deficiency. eliminate it requirements. and the negative answer choose control inhibit flexibility banks this Yet, will the helps in reserve allowed clearing banks not collateral be the of allow banks A bank would of do flexibility within to how of requirement A avoid to the the week. deficiency even have To in negative equilibrium - 16 - hold However, the reserves in type. Suppose count. The since, under rise the in change. But meet demand the mental this deposit target A at being required the b a n k be much but type not This is under it w i l l is reverse than the do cash in a m o r e cash The reserves held not to funda to p r o t e c t lag. interfere with and from demand enough vault vault ac deposits reserves deficiency the not required another checking subtracted have to h o l d larger of deficiency institution reserves deficient. it does have even cash reserves, currency. negative. into w h e ther vault fall of against vault to control cash purchase over the aggregate. clearing lets offsets lag, bank will insurance, to b e c o m e but in d e m a n d might similar the the currency voluntarily is in for monetary requirements from his deficiency a bank holds reserve a bank would currency suppose of of which depositor withdraws reverse A against absence computing sense. type the a deposits deficiency If go bank's occur it a bank's adverse institution eliminates deficiency sufficient if sufficiently clearing negative The has the are can the problem collateral to to net cause requires cover then any reserves collateral possibility is clearings of a bank transformed possible negative reserves. A types bank's of deposit of the deficiency at the the bank's proposal, reserves voluntary or is neither the target for satisfied clearing reserves demand protection by institution. used to the v a u l t monetary its cash These may purchase cash vault against nor deposit be In and many on effect fundamental securities times insurance securities aggregate. these but, deposit the on the v a l u e under affect proposal - 17 - separates the the target two monetary Additionally, held functions against the currently aggregate proposal clearing and served by protection allows banks to reserves— against earn control deposit interest on over outflows. protection imbalances. Conclusion The agency merger would financial the would simplify monetary operations. accurately the previous on all week. or additional a any level to ments required doing particular have the either in the same However, the proposal the m o n e y weekly necessity for control of interest either is issuing and their the the requirements gives target the with banks nor any provision tax could for depends insurance agencies authori aggregate. reserve of be arrangement.-^ the m o n e t a r y for monetary imposed deposit insuring monetary previous requirement presently in insurance target for deposit banks the charges It or b y in requires compensating payments deposit in open reserves neither compatible everyone. over as the changes system, to reserve charges to in through held over Reserve the and week obtain control produces of computation insuring role directed reserves measures. deposit entirely would eliminate arrangement be in one for accurate weekly advantages by lag banks return responsibilities of would reserves the government's implemented this compulsory insurance. accurate removes reverse the completely that The merger ties Under In and would regulatory seems and with the policy aggregate give deposit upon Monetary This would authority rationalize deposits without at and match week. monetary reservable aggregate set the structure. target market of It require services, - 18 - eliminating ments on problem reserves banks. ^ ments the and Further, serving as of the it determining problem reduces substitutes of the for the appropriate pricing services possibility components of of interest provided other the pay to financial target instru monetary aggregate. The proposal questions Indeed, The of the ance, more only the risk bank Banks costs of reverse The change over benefit from and and from benefits shares in Bank there would, management benefits the in from by of loser from (approximately unaffected both the customers receipts arise proposal, of possible be agency aggregate elimination only would of removing superfluous. from deposit To the reduces from all liabilities. reserves obtained. the The authorities are by contingent a g e n c y ’s r e v e n u e s they reserve elimination majority its adequacy a monetary the from Whether to m e e t agency the insur extent that economic reduction vola in the failure. policy. Treasury insuring the the insuring obtained in of by which control portfolio public tary not deposit lag deposit question the me t h o d tility, of the does accurate the a g e n c y ’s a b i l i t y it m a k e s proposal helps the fact, to benefit the reduced be a 75 p e r c e n t ) currency the of in the adoption of the the reserve the of requirement tax. an mone passing taxpayer level of is n o t not Second, improved on of the gains ta x . through the reduction reserve requirements. clear. First, securities issuance, proposal. to reduction requirement the loss the economy from be due the reserve might from held reserve by the great the monetary requirements, the mo n e t a r y and authorities - 19 - provide such free below or expenses of to reserve system. will services the of such services their with clear they should control ment as tax over or arise, it not withdrawal banks that is allocation to (primarily their by resources accurate monetary policy. a device be made raising universal. a monetary The cost should be of an more that will continue these services taxpayers and Finally, reserve then, in the the subsidy. it by is requirements here of gives reserve the an to b e n e f i t interests system proposed the can market than if offsetting in value authority taxed system becomes that But either proposed than banks s o c i e t y . 17 aggregate without the n e c e s s i t y to cost rather correspondents) a the the pres e n t exceed big the monet a r y customers the taxpayers that attendant offset under one believes for to that lending their requirements services involve both and bank revenue the window and effort certain cost Unless provided of an unnecessary now, clearing this will in almost receive discount provided, from reserve requirements. banks be requirements check and are solely and would does efficiently why a more intended as sector, inefficient it reserve reserve can be m o r e private As only cost if clearing services importantly, them. widespread, to m e e t These requirements More check Treasury eventually, benefit not cost. as society are equity, accurate require FOOTNOTES The views necessary Chicago from or the Mote, 1. be 2. was Federal Neil at so of [1, Interestingly, The few have 5. See [4]. 6. Interest 9. This target paper of 10. That 11. ally) of is, could level author has do not of benefited Larry of accurately reserve predict requirements excess would form, Simon's proposal that has such they been as unable to Carson's are not all find [2] such against that an reserve necessary in con aggregate. were also author in u s i n g and proposed has found, interest aggregate all reverse described reserve in [9, for 12]. paying payments are in The earliest interest on re on reserves described in to h e l p [7]. paper The present complete only system the basic in exten [8]. requirements ought Control requirements M-2 lag system. aggregate. over calls over against for the to M-l time same be consistent calls and for savings reserve the with the elimi deposits, requirements deposits.1 requirements offset the the proposed reserve Reserve maintain is control to author and Bank Chayim Herzig-Marx, in m i m e o g r a p h e d monetary the monetary against the the problems detail nation The alone Reserve [10]. sive while author [6]. framework target the payments proposal, See authorities been a monetary 8. System. Galbraith, arguments trolling a the Federal 3]. requirements Some of the [11]. 4. argument. 7. Reserve published in See control of critical. 3. is those J a c k A. level, Originally explicit are views Pinsky. any reprinted serves the the m o n e t a r y reserves not the comments and If expressed represent the same can be effect charge of for adjusted changes deposit in periodically interest insurance. rate (e.g., annu levels and 12. an4 This the 13. all connection risk of between bank I t ’s c o n c e i v a b l e deposits, market mutual advantages reducing the 14. still Although 7% find open the of that the 16 . One prominent service monetary authority is check clearing could granting among to way be by banks of of of this by at the expressing voluntary, it will they have the effectively deposits. voluntarily for clearing paper, and It private end on This is rates. hold securities purposes since excessive. the proposal confining offered clearing. the paid and money is ideally government re insurance. presently reallocating rates while requirements banking deposit check performed settle reserve since demand would deposits into interest interest authorities [5]. repurchases, deposits against banks topic entry to the m o n e t a r y Gibson attractive demand high their gulation house of present outside with Another be yielding indicates than 15. 17 . accounts, times apparently understood NOW requirements at of by even with market true they authority actions noted reserve less compatible would interest Experience to that accounts, funds of particularly equal ATS the failure was sector. reserves of is not the without seems charge desirable A private held with by clearing the monetary day.1 7 that raise a voluntary revenue. the to h a v e tax, once Literature 1. Angell, J. of 2. W. "The Economics, Carson, Deane. Journal 100 Per L "Is the Irving. 100% M o n e y . 4. Friedman, Milton. A Program Fordham University Gibson, W i l l i a m E. Evaluation and Analysis, VII 6. Laurent, Robert Wrong (August 7. Laurent, Robert in Paying Federal 8. Laurent, D., Robert Forthcoming 9. Mints, 10. Seltzer, pp. 11. Simons, of Tolley, of Company, Stability. the United Financial 1935. N e w York: States: and Quantitative 1575-1594. Money, R. Mote. they Credit, Lagged and in the B a n k i n g , XI "Some Neglected Forthcoming Problems Staff Studies, Chicago. "A Comprehensive Structure H. Necessary?" 652-661. Proposal for in w h i c h M o n e t a r y Studies, Federal Policy for a Revision Policy Reserve Bank Competitive is of of the Conducted." Chicago. Society. New 1950. "The P r o b l e m of the American Our Statistical Excessive Banking A s s o c i a t i o n , 35 Reserves." (March 1940), 24-36. Henry C. University 12. pp. in of Reserves." of Monetary Lawrence Adelphi Requirements— Are Larry on McGraw-Hill, Journal pp. 301-310. Bank Staff L l o y d W. York: 1972), Journal and D. Institutional Journal 1959. Journal Interest Reserve System Really for M o n e t a r y Insurance pp. Quarterly 1-35. 1964), N e w York: "Deposit "Reserve 1979), Reserve Reform." Direction?" Plan." pp. (December Press, (March D. Reserve 1935), Federal Finance, XIX Fisher, 5. Cent (November of 3. Cited George Journal of of S. Economic Policy for Chicago Press, 1948.1 2 "Providing Political for a Free Growth Economy, LXV of Society. the (December Money Chicago: Supply" 1957), pp. 465-485.
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