Abstract
We develop a theoretical model of the determination of banks' loan-deposit interest rate margins. Banks are viewed as setting their margins so as to minimize their portfolio's net interest-rate volatility. An application of the model is made to the Irish banking market. The findings are congruent with the model. It is found that the response of retail loan and deposit rates to changes in the interbank rate are for those rates to change in the same direction as the interbank rate, and that the extent of those changes is the same for both retail rates. Furthermore, we find that the ratio of the durations for loans to deposits at any one time can be found by calculating the ratio of the market value of deposits to the market value of loans at that time.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
