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Competitive deposit rates and bank service charges

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  • Tarkka, Juha

Abstract

This paper presents a partial equilibrium model of the determination of deposit rates of interest and bank service charges in a competitive banking industry. It is shown that uncertainty regarding the future use of transactions services can cause a positive. interest rate margin on deposits, and below-cost pricing of transactions services. This contrasts with existing literature which has explained the existence of "implicit interest" as a consequence of interest rate ceilings or non-neutral taxation.

Suggested Citation

  • Tarkka, Juha, 1989. "Competitive deposit rates and bank service charges," Research Discussion Papers 26/1989, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:1989_026
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    File URL: https://helda.helsinki.fi/bof/bitstream/123456789/15660/1/Muut_keskustelualoitteet_26_89.pdf
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    References listed on IDEAS

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    1. Startz, Richard, 1979. "Implicit interest on demand deposits," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 515-534, October.
    2. Smith, Bruce D., 1984. "Private information, deposit interest rates, and the `stability' of the banking system," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 293-317, November.
    3. Mitchell, Douglas W, 1988. "Explicit Interest and Demand Deposit Service Charges: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 270-274, May.
    4. Richard Startz, 1983. "Competition and Interest Rate Ceilings in Commercial Banking," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 255-265.
    5. Philip H. Dybvig & Douglas W. Diamond, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue win, pages 14-23.
    6. Tarkka, Juha & Willman, Alpo & Männistö, Hanna-Leena, 1989. "Consumption and investment in the BOF4 quarterly model of the Finnish economy," Research Discussion Papers 9/1989, Bank of Finland.
    7. Orgler, Yair E & Taggart, Robert A, Jr, 1983. "Implications of Corporate Capital Structure Theory for Banking Institutions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 212-221, May.
    8. Walsh, Carl E, 1983. " Taxation of Interest Income, Deregulation and the Banking Industry," Journal of Finance, American Finance Association, vol. 38(5), pages 1529-1542, December.
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    Cited by:

    1. Tarkka, Juha, 1994. "Risk sharing in the pricing of payment services by banks," Research Discussion Papers 18/1994, Bank of Finland.

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