Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211684 
Authors: 
Year of Publication: 
1993
Series/Report no.: 
Bank of Finland Discussion Papers No. 12/1993
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper suggests that the optimal contract in lending under asymmetric information is a fixed rate loan contract. It is shown that deposit banks have an advantage to provide maturity transformation with fixed rate contracts. This is because the spatial nature of deposit market competition makes the oligopolistic cooperation likely. Cooperation, on the other hand, provides banks more stable funding when depositors derive utility from both monetary compensation (interest) and the proximity of banks services. lt is also shown that by committing in loan markets to fixed rate returns banks can reduce their incentives to compete over deposits.
Persistent Identifier of the first edition: 
ISBN: 
951-686-374-4
Document Type: 
Working Paper

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