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A Model of the Commercial Loan Rate
Author(s) -
SLOVIN MYRON B.,
SUSHKA MARIE ELIZABETH
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03842.x
Subject(s) - loan , monopolistic competition , asset (computer security) , imperfect competition , constraint (computer aided design) , competition (biology) , economics , econometrics , liability , imperfect , monetary economics , fixed interest rate loan , business , microeconomics , finance , computer science , mathematics , monopoly , philosophy , geometry , computer security , biology , ecology , linguistics
This paper explores the theoretical and empirical determinants of the commercial loan rate charged by commercial banks based on a model of financial intermediary behavior which assumes monopolistic competition in asset and liability markets. The model incorporates the constraint that banks must maintain at least a minimum quantity of bonds in asset portfolios. Equations are estimated on a time series basis to explain the behavior of commercial loan rates over the period 1953 to 1980. The evidence appears consistent with the hypothesis that commercial banks operate in a market characterized by imperfect competition and that they explicitly set loan rates.