IDEAS home Printed from https://ideas.repec.org/b/sea/opaper/occ51.html
   My bibliography  Save this book

Revitalising Reserve Requirement In Banking Model: An Industrial Organisation Approach

Author

Listed:
  • Iman Gunadi
  • Cicilia A. Harun

Abstract

The objective of reserve requirement as a policy tool is mainly to control money supply in the economy. However, the changes of reserve requirement also affect banks´ interest rates. Thus, the changes will have an effect on banking optimal behaviour in maximising profits. Using the industrial organisation approach, this paper will evaluate the Indonesian banking sector in the course of designing an unconventional reserve requirement policy that link a bank´s reserve requirement ratio to the bank´s loan to deposit ratio. When a bank´s loan to deposit ratio increases, the bank will have a smaller ratio of reserve requirement. This incentive mechanism was implemented to accomplish Bank Indonesia´s intentions of increasing loan growth and reducing the “excess liquidity” in the Indonesian banking sector. The paper reveals that the policy is effective in boosting bank loans and consequently decreasing excess liquidity. It also suggests that the policy could provide another tool for the central bank to impact bank liquidity in order to support financial system stability.

Suggested Citation

  • Iman Gunadi & Cicilia A. Harun, 2011. "Revitalising Reserve Requirement In Banking Model: An Industrial Organisation Approach," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ51, April.
    • Handle: RePEc:sea:opaper:occ51
    as

    Download full text from publisher

    File URL: http://www.seacen.org/GUI/pdf/publications/occasional/2011/occ51/occ51.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Iman Gunadi & Advis Budiman, 2012. "Optimisation of Bank Portfolio Composition in Indonesia," EcoMod2012 4166, EcoMod.
    2. Rani Wijayanti & Nur M Adhi P & Cicilia A Harun, 2020. "Effectiveness of macroprudential policies and their interaction with monetary policy in Indonesia," BIS Papers chapters, in: Bank for International Settlements (ed.), Measuring the effectiveness of macroprudential policies using supervisory bank-level data, volume 110, pages 31-50, Bank for International Settlements.
    3. Satria & Harun & Taruna, 2016. "The Macro-prudential aspects of loan-to-deposit-ratio-linked reserve requirement," Applied Economics, Taylor & Francis Journals, vol. 48(1), pages 24-34, January.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sea:opaper:occ51. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Azharin (email available below). General contact details of provider: https://edirc.repec.org/data/seacemy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.