Optimizing the required reserve management by the Italian banks

The Required Reserve reform enforced in Italy durng the Fall 1990 had three main implications: (1) a growth of the volumes and efficiently in the interbank market; (2) a dynamic required reserve deposit management; (3) a reduction of the opportunity cost associated to the required reserve. This paper applies a simple linear programming model to quantify the benefit of the required reserve reform in terms of reduced costs (higher yields) and develops a stochastic dynamic programming model to formalize the optimal reserves’ management strategy.