We develop a dynamic, search-theoretic model of bank deposit and loan markets where relationships are bilateral, the demand for liquid assets is microfounded, and consumers are privately informed about their liquidity needs. As the policy rate rises, the deposit spread widens, and aggregate...

We show that maturity transformation does not expose banks to interest rate risk---it hedges it. The reason is the deposit franchise, which allows banks to pay deposit rates that are low and insensitive to market interest rates. Hedging the deposit franchise requires banks to earn income that is...

This paper empirically examines the historical allegation of fraudulent behavior of bank management by scrutinizing the balance sheet of individual bank and finds none of the Illinois free banks was without specie reserve. Applying econometric tools to balance sheet items, this paper identifies...

We show that maturity transformation does not expose banks to significant interest rate risk|it hedges it. This is due to banks' deposit franchise. The deposit franchise gives banks substantial market power over deposits, allowing them to pay deposit rates that are low and insensitive to market...