This article reviews the supplementary special deposits scheme, known as the 'corset', as an instrument of monetary control.
The scheme was introduced in response to the growth of 'liability management: which made it difficult for the authorities to restrict the growth of the broad monetary aggregates in the face of strong demand for credit. It was designed to have the minimum impact on the structure of financial markets.
The scheme was largely effective in containing the growth of wholesale deposits. But it tended to encourage the diversion of banking business into other channels.
The scheme exemplifies the difficulties of relying excessively on direct controls on the banking system as a means of influencing monetary developments.
The supplementary special deposits scheme