Loan-monitoring And Deposit-servicing By Commercial Banks In A Stationary Environment

QED Working Paper Number
979

We take up the hypothesis that risk premiums on equities are embodying the costs incurred by equity holders in monitoring the firms which they have invested in. This idea is a key ingredient in our construction of a two sector neoclassical model with widget producing firms and commercial banks. So-called user costs or interest rate spreads are key prices of commercial bank services in the model. Commercial banks produce deposit services (check-writing services or transactions services) and lending services to widget producers.

Author(s)

JEL Codes

Keywords

National Accounting
Commercial Banking
Monitoring Activity
General Equilibrium

Working Paper

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