Fernando Alvarez, Dept. of Finance, Babson College, Wellesley, Mass.
[1] . This paper draws from Chapter 1 and Appendix D of my dissertation at New York University. I want to thank my principal advisors Anthony Saunders and Paul Wachtell for their moral and intellectual support. The usual caveats apply.
[2] . The hypothesis that bank borrroers bear the tax cannot be tested directly because of the lack of suitable data.E
[3] . Considering the extensive recent literature, it is surprising that the question of who bears the burden of bank regulation and how it is borne was considered only of "academic interest" by Rose and Rose (1979 p. 332).
[4] . Although the insurance rates did not change, the risk of bank portfolios may have increased. Therefore, the subsidy implicit in low insurance rates may have increased and this would have to be considered in a study of the spread between the rates on CDs and TBs.
[5] . Fama ignored, and James considered and dismissed the influence of the FDIC.
[6] . A properly constructed aggregate measure of the tax includes all its components. Alvarez (SFA) contains the details of the procedure followed to construct such a measure and the statistical tests that show that it is indeed a proper measure of the tax.
[7] . This view came into question by Scott Lummer in the FMA annual meetings in Orlando, Fl. (Oct. 1990). In oral comments about his current research, he stated that since firms have their own bank accounts histories, they could make them available to prospective lenders. From this perspective, the conventional informational advantage of banks does not appear to be as important. Lummer stated that the informational advantage of banks may be found in inter-locking boards of directors.
[8] . See for example Bogan-Kiernan Macroeconomics West Publishing Chapter 10.
[9] . Goodfriend and Hargraves reference Friedman and Shwartz pp. 627-32 who document this shift and describe it as a "near-revolutionary change." Ibid., p. 7.
[10] . I return to this point in the subsection on interest rate smoothing.
[11] . Greenbaum refers to the "fulcrum of monetary control" as the "traditional" view; whereas I have been refering to it as the "contemporary" rationale to distinguish it from
the "liquidity" and the "Fed credit policy" rationales I discussed above.
[12] . Or, in the term coined by McKinnon (1973, 1991) an "instrument of financial repression."
[13] . This appendix draws on Schweitzer (1989)