Showing papers on "Accounting period published in 1985"
TL;DR: In this article, the authors compare the effect of changes in the amount of required reserves and the expected value of end-of-period reserves under the LRA and CRA regimes.
Abstract: In 1984 the Board of Governors of the Federal Reserve System restored contemporaneous reserve accounting (CRA). Lagged reserve accounting (LRA) had been instituted in September 1968. Briefly, under a contemporaneous accounting system, member banks are required to hold a certain fraction (the required reserve ratio) of current deposits as reserves during each one-week accounting period.' With the lagged accounting system, the current level of required reserves is calculated as a fraction of the deposit liabilities held by the bank two weeks earlier. The literature focuses almost exclusively on the macro policy issue: will the return to CRA enable the Federal Reserve to exercise greater control over the money stock? In this paper the primary question is whether a bank will prefer LRA to CRA, based on the criterion of expected profits. This model is the simplest which can be used to illustrate the fundamental difference between LRA and CRA: changes in deposits affect both total and required reserves with CRA, but only total reserves with LRA. It is assumed that the representative banking firm is a risk-neutral perfect competitor, which maximizes the expected value of profits E(X). The firm earns an interest rate r on loans and is subject to a required reserve ratio p. Failure to meet reserve requirements means the firm must borrow reserves at a penalty rate rp and is subject to a lump sum penalty cost M; end-of-period free reserves are loaned out at a rate rs. Changes in deposits, I\Dt, are a random variable which is uniformly distributed with a mean of zero; the firm selects a reserve ratio p, which maximizes E(7r). This model represents one accounting period for the banking firm. At the beginning of the period (i.e., Thursday morning) the bank has deposit liabilities D, and selects an optimal reserve ratio p. Since the expected intraperiod change in deposits (/\Dt) is zero, pDt is also the expected value of end-of-period reserves. By assumption, the bank's loan portfolio cannot be adjusted during the period, therefore changes in deposits are matched by changes in reserves. The profit-maximizing strategy involves maintaining the optimal level of reserves: a high reserve ratio
5 citations
01 Jan 1985
TL;DR: In this paper, the authors deal with the formats and rules governing their use, which are illustrated by a number of examples drawn from the accounts of several public companies, as well as a discussion of the issues involved in their use.
Abstract: By law every company must lay accounts before its members for each accounting period. These accounts must be drawn up in accordance with the accounting rules described in Chapters 2 and 3. In addition they must show a mass of information set out in the Companies Act under the heading and subheadings of prescribed formats. These formats were introduced in 1981, and similar versions are in use throughout the European Community. This chapter deals with the formats and rules governing their use, which are illustrated by a number of examples drawn from the accounts of several public companies.