The Study of Legal Reserve and Bank's Assets on Banking Facilities (by using GMM method)

In this paper the affect of ratio of two variables of legal reserve and banks’ assets on the power of paying loan and banks credits are reviewed by using Panel data and GMM method. For this purpose the information related to some state Iranian banks are gathered and then by using a Panel dynamic pattern and GMM Method the affects of the two mentioned variables on facilities granted by banks are reviewed. The results of this research show that in spite of decrease of legal reserve ratio within the last years this variable has not an effective role on the power of level of the facilities granted by banks; in contrast bank’s assets - as a special characteristics of banks - has had more affect on the dependant variable. Considering this fact we can conclude that the foregoing tool among the other monetary policy tools, i.e. the ratio of legal reserve that is considered a part of monetary policy whether in usury system or usury-free system is not an effective tool. In fact the reason of this matter is originated from the imposed policies of the government and it is a proof that reveals the weak independence of the Central Bank of Iran for execution of monetary policies.