A Model of the Commercial Loan Rate
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- Author(s): MYRON B. SLOVIN, MARIE ELIZABETH SUSHKA
- Published: Apr 30, 2012
- Pages: 1583-1596
- DOI: 10.1111/j.1540-6261.1983.tb03842.x
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.