Abstract
The present study re-examines the tax burden effects of reserve requirements on bank profitability. It differs from previous work in two ways: (1) changes in stock prices, rather than accounting data, are used to measure profitability effects; and (2) emphasis is placed on changes in reserve requirements, as opposed to their level. Regarding the latter distinction, two kinds of changes are considered: (1) temporary changes in reserve requirements for the purpose of discretionary monetary policy, and (2) more permanent changes in reserve requirement levels. Based on the event-study methodology, temporary changes were found to have little effect on security prices, whereas more permanent changes had a stronger influence on bank stock prices, reflecting a tax burden effect.
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