On the Pervasive Effects of Federal Reserve Settlement Regulations

Abstract

The purpose of this paper is to determine whether Federal Reserve settlement effects have also appeared in the overnight London interbank offer rate (LIBOR) since the Federal Reserve removed the reserve requirements on Eurocurrency liabilities. 1 We begin by explaining why this is an important issue and by describing the characteristics of these settlement effects. The primary reason to examine this change in reserve requirements is to determine the reach of U.S. Federal Reserve regulatory changes. Markets are becoming increasingly global and, accordingly, large bank operations are becoming increasingly global. Finding a settlement effect in LIBOR would suggest that banks receiving U.S. deposits actively

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