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The Incidence of Reserve Requirements in Brazil: Do Bank Stockholders Share the Burden?

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  • Fabia A. de Carvalho
  • Cyntia F. Azevedo

Abstract

There is consensus in the economic literature that the reserve requirements are a tax levied upon financial intermediation, yet the incidence of the tax remains controversial. In this paper, we test whether changes in reserve requirements in Brazil impact the stock returns of the financial system distinctly from the rest of the economy. We find evidence that Brazilian bank stock returns were affected by changes in reserve requirements on both time deposits and transaction accounts, which implies that the tax burden of required reserves was not fully passed through to banks' borrowers or clients. Stock returns of non-financial firms were also affected by these changes, suggesting that in some cases, reserve requirements on time deposits and transaction accounts served as a non-neutral instrument of monetary or fiscal policy in Brazil.

Suggested Citation

  • Fabia A. de Carvalho & Cyntia F. Azevedo, 2008. "The Incidence of Reserve Requirements in Brazil: Do Bank Stockholders Share the Burden?," Working Papers Series 160, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:160
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    References listed on IDEAS

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    Cited by:

    1. Koray Alper & S. Tolga Tiryaki, 2011. "Zorunlu Karsiliklarin Para Politikasindaki Yeri," CBT Research Notes in Economics 1108, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Christian Glocker & Pascal Towbin, 2012. "The Macroeconomic Effects of Reserve Requirements," WIFO Working Papers 420, WIFO.
    3. Mahir Binici & Bülent Köksal, 2013. "Do Bank Stockholders Share the Burden of Required Reserve Tax? Evidence from Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(4), pages 46-73, July.
    4. Christian Glocker & Pascal Towbin, 2012. "Reserve Requirements for Price and Financial Stability: When Are They Effective?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 65-114, March.
    5. Patrice T. Robitaille, 2011. "Liquidity and reserve requirements in Brazil," International Finance Discussion Papers 1021, Board of Governors of the Federal Reserve System (U.S.).
    6. Bank for International Settlements, 2012. "Operationalising the selection and application of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 48.
    7. Fabia A. de Carvalho & Marcos R. Castro, 2015. "Foreign Capital Flows, Credit Growth and Macroprudential Policy in a DSGE Model with Traditional and Matter-of-Fact Financial Frictions," Working Papers Series 387, Central Bank of Brazil, Research Department.
    8. Mr. G. Terrier & Mr. Rodrigo O. Valdes & Mr. Camilo E Tovar Mora & Mr. Jorge A Chan-Lau & Carlos Fernandez Valdovinos & Ms. Mercedes Garcia-Escribano & Mr. Carlos I. Medeiros & Man-Keung Tang & Miss M, 2011. "Policy Instruments to Lean Against the Wind in Latin America," IMF Working Papers 2011/159, International Monetary Fund.
    9. Ricardo Hausmann, 2008. "In Search of the Chains that Hold Brazil Back," Growth Lab Working Papers 20, Harvard's Growth Lab.
    10. Joseph Bitar, 2022. "A note on reserve requirements and banks' liquidity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4837-4852, October.
    11. Ramos-Tallada, Julio, 2015. "Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 135-161.
    12. Fabia Carvalho & Fabia A. de Carvalho & Silvio Michael de Azevedo Costa & Marcos Ribeiro de Castro, 2013. "Traditional and matter-of-fact financial frictions in a DSGE model for Brazil: the role of macroprudential instruments and monetary policy," EcoMod2013 5145, EcoMod.
    13. Cañón, Carlos & Margaretic, Paula, 2014. "Correlated bank runs, interbank markets and reserve requirements," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 515-533.
    14. Glocker, Christian & Towbin, Pascal, 2015. "Reserve requirements as a macroprudential instrument – Empirical evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 158-176.
    15. Fabia A. de Carvalho & Marcos R. de Castro, 2015. "Macroprudential and Monetary Policy Interaction: a Brazilian perspective," Working Papers Series 405, Central Bank of Brazil, Research Department.
    16. International Monetary Fund, 2012. "Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America," IMF Working Papers 2012/142, International Monetary Fund.

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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