Template-Type: ReDIF-Paper 1.0
Author-Name: Carlos Cantú
Author-X-Name-First: Carlos
Author-X-Name-Last: Cantú
Author-Name: Rocío Gondo
Author-X-Name-First: Rocío
Author-X-Name-Last: Gondo
Author-Name: Berenice Martinez
Author-X-Name-First: Berenice
Author-X-Name-Last: Martinez
Title: Reserve requirements as a financial stability instrument
Abstract: We quantify the trade-offs of using reserve requirements (RR) as a financial stability tool. A tightening in RR reduces the amplitude of the credit cycle. This lowers the frequency and strength of financial stress episodes but at a cost of lower growth in credit and economic activity. We find that the gains from a lower probability and magnitude of financial stress episodes are greater than the costs from the initial reduction in economic activity. In addition, we find that RR have a stronger effect on emerging market economies than in advanced economies, both in terms of costs and benefits. Finally, we find that uniform RR have a stronger effect than RR that differenciate by maturity or currency.
Creation-Date: 2024-04
File-URL: https://www.bis.org/publ/work1182.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1182.htm
File-Format: text/html
Number: 1182
Keywords: reserve requirements, macroprudential policy, financial stress episodes, early-warning system, financial cycle
Classification-JEL: E44, E58, F41, G01, G28
Handle: RePEc:bis:biswps:1182