Use of asset-based reserve requirements

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Written by Thomas Palley

ABRR requires financial firms to hold reserves against different classes of assets, and the regulatory authority sets adjustable reserve requirements on the basis of its concerns with each asset class.

ABRR can be used to promote socially desirable investments and "green" investments that are needed to address climate change.  Loans for such investment projects can be given a negative requirement that can be credited against other reserve requirements, thereby encourage banks to finance those projects in order to earn the credit.  In sum, ABRR provides a comprehensive framework for collaringthe financial sector and ensuring that it promotes shared prosperity.

Thomas i. Palley, State of the World 2014, pp. 179-180.

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