Greenspan, A. (1997). Statements to Congress. Federal Reserve Bulletin, 83, 254-259.
Sellon, G. H. Jr., & Weiner, S. E. (1996). Monetary policy without reserve requirements: Analytical issues. Economic Review, 81(4), 5-24.
Analysis of Fedpoint 45: Reserve Requirements
Schlesinger, J. M. (1997, May 9). Greenspan is ready to increase rates if the growth in demand doesn't slow. Wall Street Journal, p. A2.
Banks do not like to hold money in accounts which are subject to reserve requirements. The article gives a clear explanation of the reasons for this dislike. The Federal Reserve Bank does not pay interest on required deposits made by banks. Banks pay a cost, in lost revenue, to hold required reserves above the amount that they would hold without being required by law. This is similar to being taxed on the amount of deposits they hold in these types of accounts. The article neglects to mention another type of account, a clearing balance account, a bank can hold at the Federal Reserve Bank which does pay implicit interest in the form of reduced charges to clear transactions through the Federal Reserve payment system (Sellon and Weiner, 1996, p. 21). These accounts function in many ways like required reserves but are not mandated.
ng. The desire to avoid reserve requirements has led to the creation of new types of financial accounts which do not have reserve requirements. Two of these are Certificates of Deposit (CDs) and Sweeps accounts. Sweeps accounts have only existed since 1994. These accounts automatically transfer money out of accounts with reserve requirements, like checking accounts, to accounts without required reserves such as money market accounts (Sellon and Weiner, 1996, p. 10). This lowers the amount of money in banks which is subject to reserve requirements and lessens the impact the Federal Reserve Board can have on monetary policy when it changes reserve requirements.
The article gives definitions of terms in l