Bank Portfolio Allocation, Deposit Variability, and the Availability Doctrine

What is it about?

This paper uses the concept of asymmetric information to explain the advantages that customer relationships bring to banks and their corporate customers. It goes on to use the existence of relationships to explain why the Availability Doctrine overstated the effects of tight money on banks' willingness to lend.

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Why is it important?

The paper shows how important asymmetric information is in bank competition. It also showed that loan requests from valued customers disturbed a bank's portfolio equilibrium even if the request was not filled.

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