Rodríguez Mendizábal, Hugo2017-01-172017-01-172017-01http://hdl.handle.net/10230/27912What would be the effect of imposing a 100 percent reserve requirement to depository institutions? This paper contends that reserves do not compete with loans on the asset side of bank’s balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions.application/pdfengThis is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.info:eu-repo/semantics/workingPaperFirm financingInvestmentDebt maturityCredit spreadsDebt dilutionNarrow bankingEndogenous moneyInterbank marketBank solvencyLiquidityMonetary policyinfo:eu-repo/semantics/openAccess