Abstract

Ever and again the opinion is encountered that banks could create liquidity themselves by expanding interbank business and thus thwart a restrictive policy of the Bundesbank. - Claus Köhler et al. support the view that the Bundesbank does indeed control the objective bank liquidity measured by the free liquidity reserves, but that subjectively the banks feel liquid as long as they have unused basic facilities at their disposal. - Otmar Issing et al. assert that by better utilization of free liquidity reserves the banks could in fact procure objective liquidity by way of interbank transactions. In both cases, the banks would not follow a restrictive policy of the Bundesbank either closely enough or quickly enough. On the basis of these deliberations, the various authors discuss proposals for improving money and credit policy control instruments. In this article it is shown that the hypotheses on which such proposals are based will not stand up to close scrutiny and that, on the contrary, by variation of the free liquidity reserves the Bundesbank can enforce any and restriction it desires. To demonstrate this, it is first examined. - how the bank liquidity that is to be controlled can be defined, - whether a restrictive policy may possibly be hindered because the (objective) overall liquidity is increased by expanding interbank business, or - whether a restrictive policy may possible be hindered because, independently of the trend of overall bank liquidity, the (subjective) liquidity of individual institutions is increased by expanding interbank business. It is then shown that in the case of monetary expansion the banks have tv orient themselves directly or indirectly also to the free liquidity reserves and that in the past (to some extent in contrast to first appearances) they have done so.