tailieunhanh - SEIGNIORAGE, RESERVE REQUIREMENTS AND BANK SPREADS IN BRAZIL

Our Bayesian approach estimates a time-varying exposure from banks’ gains and losses on their interest-rate derivative positions. This approach builds on early work by Gorton and Rosen (1995) who did not have data on market values, because few banks reported them before the adoption of fair value accounting in the mid 1990s. Instead, Gorton and Rosen use data on "replacement costs" from the Call Reports, which refers to the value of derivatives that are assets to the bank (not netting out the liabilities). Under the assumption that the positions have constant maturity and constant interest- rate exposure, these data can be used to compute the market value. | 1 Chapter 7 SEIGNIORAGE RESERVE REQUIREMENTS AND BANK SPREADS IN Brazil Eliana Cardoso I thank Patrick Honohan Ilan Goldfajn Eustáquio Reis Sergio Schmukler Altamir Lopes Eduardo Luís Lundberg Sérgio Mikio Koyama and Márcio Issao Nakane for data comments and extremely helpful answers to my endless questions. Remaining mistakes are my own. 2 Introduction In 2001 nominal bank lending interest rates in Brazil reached an annual average of 44 percent for business loans and 73 percent for personal loans. With the inflation rate measured by CPI no more than 8 percent such rates act as a serious constraint on borrowing especially for longer terms. No wonder then that bank credit was just 28 percent of GDP not because of a lack of sophisticated credit analysis or even of lending capacity but essentially from the effect of high interest rates on demand. The cost of funds to banks is high money market and wholesale deposit rates averaged almost 18 per cent in 2001 and the intermediation margins above these rates must cover the cost of taxes and other impositions including the cost of high reserve requirements and government-directed lending as well as the costs of non-performing loans. This paper examines the role of bank-captured seigniorage as well as explicit taxation in influencing spreads. Bank seigniorage revenue depends on the interaction between inflation the market for demand deposits and the rate of reserve requirements imposed by the central bank. Bank seigniorage revenue increased with inflation in Brazil until 1989 declined when inflation accelerated above 1 000 percent per year after 1992 and turned negative with the Real Plan in 1995. Despite the lack of competition otherwise observed in Brazilian banking it is shown that that any increase in seigniorage collected by commercial banks has tended to reduce the spread between interest rates on deposits and loans. As a corollary it can be inferred that if supported by sound fiscal and monetary policy reductions in

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