MARKET ACCESS, UNCERTAINTY, AND RESERVE-POSITION ADJUSTMENTS OF LARGE COMMERCIAL BANKS IN THE 1960's.

The decade of the 1960's was a period of severe challenge to reserve-position management techniques of large commercial banks. Credit demands levied on banks increased rapidly throughout the decade, while traditional exogenous sources of loanable funds followed a more modest growth pattern. Moreover, large banks were apparently willing to commit themselves to an aggressive policy of accommodating the credit requests of their preferred customers. Under these conditions the differences in growth patterns between loan demand and exogenous deposits resulted in increasing pressure on banks' reserve-positions, and forced banks to an early and continued reliance on short-term reserve-asset markets as a means of making reserve-position adjustments. This investigation of reserve-position behavior during the 1960's rests on two key postulates of managerial strategy. On the one hand banks are assumed to anticipate the strength of pressure on their reserve-positions and to alter desired reserve-positions according to their expectations. Further, banks must be able to evaluate the permanence of short-run deviations between actual and desired reserve-positions and, when necessary, enter reserve-asset markets to restore equilibrium. Consequently, reserve-position adjustments will be strongly influenced by uncertainty over the permanence of a discrepancy between desired and actual levels and by the terms on which access to reserve-asset markets is gained. [ABSTRACT FROM AUTHOR]