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Asset‐based reserve requirements: reasserting domestic monetary control in an era of financial innovation and instability

Asset‐based reserve requirements: reasserting domestic monetary control in an era of financial... This paper argues for developing a new system of financial regulation based upon asset‐based reserve requirements (ABRRs). Such a system represents a shift in regulatory focus away from the traditional concern with the liability side of financial intermediaries' balance sheets. ABRRs have both significant macroeconomic and microeconomic advantages. At the macroeconomic level, they can provide policy makers with additional policy instruments. This is particularly useful in light of recent concerns about the dangers of asset price inflation and the potential need to target asset prices. They can also help restore the traction of monetary policy at a time when banks are becoming a smaller part of the financial landscape. At the microeconomic level, they can be used to discourage excessive risk taking by financial intermediaries. Finally, they can also raise considerable seignorage. To be fully effective, a system of ABRRs should be applied to all financial intermediaries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Political Economy Taylor & Francis

Asset‐based reserve requirements: reasserting domestic monetary control in an era of financial innovation and instability

Review of Political Economy , Volume 16 (1): 16 – Jan 1, 2004
16 pages

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References (16)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1465-3982
eISSN
0953-8259
DOI
10.1080/0953825032000145454
Publisher site
See Article on Publisher Site

Abstract

This paper argues for developing a new system of financial regulation based upon asset‐based reserve requirements (ABRRs). Such a system represents a shift in regulatory focus away from the traditional concern with the liability side of financial intermediaries' balance sheets. ABRRs have both significant macroeconomic and microeconomic advantages. At the macroeconomic level, they can provide policy makers with additional policy instruments. This is particularly useful in light of recent concerns about the dangers of asset price inflation and the potential need to target asset prices. They can also help restore the traction of monetary policy at a time when banks are becoming a smaller part of the financial landscape. At the microeconomic level, they can be used to discourage excessive risk taking by financial intermediaries. Finally, they can also raise considerable seignorage. To be fully effective, a system of ABRRs should be applied to all financial intermediaries.

Journal

Review of Political EconomyTaylor & Francis

Published: Jan 1, 2004

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