THE IMPACT OF RESERVE-REQUIREMENT CHANGES ON LARGE BANKS' CDs PREMIA FURTHER EVIDENCE ON UNIQUENESS OF BANK LOANS

This study examines the impact of changes in reserve requirements on the behavior of banks' CDs rates relative to the rates paid on Treasury bills, commercial paper and bankers' acceptances. The findings indicate that the CD market rates responded negatively to announcement of reserve-requirement increases and positively to announcements of decreases. This new evidence suggests that banks' CD holders bear part of the reserve tax. As to whether banks' borrowers bear part of the tax remains an open question. Thus, until further evidence is revealed the case of the uniqueness of bank loans should not be built on the incidence of the reserve-requirement tax alone. Our findings, however, do not preclude the possibility that banks' borrowers might bear part of the reserve tax and that banks' loans are unique.