Ask/bid rate and reserve requirement
In Stage 1, we introduced two interbank rates: the ask rate on interbank assets and the bid rate on interbank deposits. In addition, we mentioned the reserve requirement regulation.
When it comes to the management of the interbank position, one does not always know which side of the balance sheet (assets or deposits) will be affected by the collection of deposits. Therefore, very often the average of the ask and bid interbank rates is used as the transfer price.
As far as the central bank’s regulation is concerned, the reserve requirement implies that part of the deposits collected will not be available for investment purposes, but will have to be kept at the central bank. This costly regulation has to be ...
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