Article1984

THE SENSITIVITY OF THE PRIME RATE TO MONEY MARKET CONDITIONS

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38 citations0/0 files storedThe Journal of Financial Research

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Banking stability, regulation, efficiency Monetary Policy and Economic Impact Financial Markets and Investment Strategies

Abstract

Abstract Commercial banking's institutional setting can make one bank's profits dependent upon the pricing strategies of its rivals. In this environment, widely disseminated prime rate quotes, loan contracts with “most‐favored‐customer” clauses, and rule‐of‐thumb pricing techniques can result in prime rate outcomes that jointly maximize banks' market values. In this paper the relationship between the prime and money market rates is examined over the last decade to determine if the prime rate behaves more like a competitive money market rate than an oligopolistic price.

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References

1971Industrial Market Structure and Economic Performance.1971A Non-cooperative Equilibrium for Supergames 1939PRICE THEORY AND BUSINESS BEHAVIOUR 1975Inflation: Its Mechanics and Welfare Costs 1986Practices that (Credibly) Facilitate Oligopoly Co-ordination 1980Credit Rationing and Implicit Contract Theory 1986Most-Favored-Customer Pricing and Tacit Collusion 1964Commercial Bank Loan and Investment Policy.

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