Limodio, NicolaStrobbe, Francesco2016-07-072016-07-072016-06https://hdl.handle.net/10986/24650Financial regulation affects government revenue whenever it imposes both the mandatory quantity and price of government bonds. This paper studies a banking regulation adopted by the National Bank of Ethiopia in April 2011, which forces all private banks to purchase a fixed negative-yield government bond in proportion to private sector lending. Having access to monthly bank balance sheets, a survey of branch costs and public finances documentation, the effect of the policy on government revenue can be tracked. This is compared to three plausible revenue-generating alternatives: raising funds at competitive rates on international markets; distorting the private lending of the state-owned bank; and raising new deposits through additional branches of the state-owned bank. Three main results emerge: the government revenue gain is moderate (1.5-2.6 percent of the tax revenue); banks comply with the policy and amass more safe assets; banks' profit growth slows without turning negative (from 10 percent to 2 percent).en-USCC BY 3.0 IGOAUCTIONGOVERNMENT SAVINGSBANKING REGULATIONDEPOSITCAPITAL MARKETSHOLDINGLIABILITYEQUIPMENTACCOUNTINGDEPOSITSPRIVATE COMMERCIAL BANKSLIQUIDATIONBOND PRICEFINANCIAL DEEPENINGINTERNATIONAL CAPITALPUBLIC DEBTSSTOCKPRIVATE LENDINGVALUATIONRETURN ON EQUITYBANKING INDUSTRYINTERESTDEBT CRISISINDUSTRYVARIABLE COSTINTEREST RATEEXCHANGEBANKING SYSTEMRESERVE REQUIREMENTSLIQUIDITYINTERNATIONAL FINANCIAL MARKETSSERVICESDEBTORPOLITICAL ECONOMYINTERNATIONAL CAPITAL MARKETSBONDSDOMESTIC INTEREST RATESDEBT OVERHANGSLOANBORROWERSBRANCH INFRASTRUCTURETAXINCOME TAXGOVERNMENT BONDSOVEREIGN DEFAULTLIABILITY COMPOSITIONDUMMY VARIABLERESERVEINTERNATIONAL BANKREVENUE SOURCESBUDGETCENTRAL BANKPRIVATE SECTOR BANKSLABOR MARKETSAVINGSALLOCATION OF CAPITALLOCAL BANKSCURRENCYDOMESTIC CURRENCYBANK BEHAVIORCOMMERCIAL BANKASSET HOLDINGTRANSPORTDEBTSPERSONAL INCOMEFINANCESPRIVATE BANKSDEBT OUTSTANDINGINTEREST RATESEXTERNALITIESMONETARY FUNDMARKETSDEBTSOVEREIGN RATINGRETURNOPEN ECONOMYINTERNATIONAL DEBTDOMESTIC DEBTINTERNATIONAL BONDSDOLLAR DEBTLOANSLABORINTERNATIONAL DEBT CRISISRESERVESRESERVE REQUIREMENTFINANCEBANK DEPOSITSINFRASTRUCTURETAXESBANKING SECTORBANKSEXPENDITUREAUCTIONSEQUITYINVESTORSSOVEREIGN DEBTINTEREST PAYMENTSSYSTEMIC RISKDEBT REDUCTIONWAGESVALUEBANKGOVERNMENT FINANCERETURNSCREDITTREASURY BILLSMACROECONOMICSGOVERNMENT EXPENDITUREINTEREST PAYMENTBANK BALANCE SHEETSGOVERNMENT REVENUEDISBURSEMENTSCAPITAL FLOWSDEBTOR REPORTING SYSTEMFINANCIAL REGULATIONBALANCE SHEETMARKETDEFAULTT-BILLSDEPOSIT MOBILIZATIONPUBLIC DEBTTREASURYINSURANCETAXATIONGOVERNMENT DEBTGOVERNMENT POLICIESECONOMIC DEVELOPMENTGOVERNMENT BONDSLANDRESERVE RATIOSSECURITYINTEREST ARREARSNATIONAL BANKINVESTMENTRISKRETURNS ON EQUITYBONDCOMMERCIAL BANKSSOVEREIGN BONDSBALANCE SHEETSPUBLIC FINANCESDEBT RESTRUCTURINGFINANCIAL MARKETSBANKINGCITNET LOSSREVENUEPROFITLENDINGCHECKLIQUID CASHPROFITSLIABILITIESGOVERNMENTSARREARSBANK HOLDINGLIQUID ASSETSINTERNATIONAL MARKETSDEVELOPMENT BANKACCOUNT HOLDERSGOVERNMENT INTERVENTIONWorking PaperWorld Bank10.1596/1813-9450-7733