Document Type
Case Study
Case Series
Reserve Requirements
JEL Codes
G01, G28
Abstract
On May 6, 2007, the Bank of the Republic (BR), the central bank of Colombia, introduced countercyclical marginal reserve requirements (RRs) on increases in banks’ deposit accounts to constrain leverage and credit risk in the financial system. A month later, the BR also raised the ordinary RR on outstanding deposit balances. The BR kept those requirements in place for more than a year. In June 2008, when the effects of the Global Financial Crisis (GFC) began to temper economic and credit growth, the BR eliminated marginal RRs. Also in June 2008, however, the BR raised the ordinary RR on outstanding deposit balances to sterilize the monetary expansion caused by its purchases of international reserves. In October, as the GFC worsened and the BR switched to an expansive monetary policy, it lowered the ordinary reserve requirement in an effort to free up nearly 1 trillion pesos (USD 430 million) of local currency liquidity. Researchers disagree on the effectiveness of reserve requirement policy in Colombia in both constraining credit growth prior to the GFC and alleviating credit tightening during the GFC.
Recommended Citation
Leonard, Natalie and Decker, Bailey
(2022)
"Colombia: Reserve Requirements, GFC,"
Journal of Financial Crises: Vol. 4
:
Iss. 4, 429-441.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol4/iss4/20
Date Revised
2022-12-22
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