Open AccessA Banks International Loan Policy And The Supply of Deposits
Author(s) -
Alexandros P. Prezas
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v3i3.6515
Subject(s) - loan , interest rate , business , monetary economics , differential (mechanical device) , financial system , intervention (counseling) , international economics , economics , finance , engineering , aerospace engineering , psychology , psychiatry
If the supply of domestic deposits is a function of the rate on deposits and the amount of loans extended domestically, and if domestic banks maximize profits, then the interest rate differential between two countries persists despite the lack of risk or government intervention. Furthermore, each domestic bank holds a combination of domestic and foreign loans although rates abroad are higher. By extending domestic loans, the bank attracts more deposits and incurs lower interest costs on these deposits.