An Investigation of the Effect of the 1990 Reserve Requirement Change on Financial Asset Prices
Posted: 20 May 2001
Abstract
In 1990, the Federal Reserve reduced reserve requirements on large, nonpersonal time deposits and net Eurocurrency liabilities. In this paper, evidence on who gained from the reduction in this tax is provided. 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.
JEL Classification: G20, G21
Suggested Citation: Suggested Citation