Reserve requirements that force banks to keep a certain fraction of their deposits as reserves and restrictions on the interest rates that can be paid on deposits have been the major forces behind financial innovation.

Question

Quizplus · Accepted Answer

Reserve requirements and interest rate restrictions create incentives for banks to develop new products and services in order to maximize profits within the constraints of these regulations. This has led to financial innovation, such as the development of money market accounts and sweep accounts.

Reserve Requirements That Force Banks to Keep a Certain Fraction