An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy

Jeremy Stein

RAND Journal of Economics, 1998, vol. 29, issue 3, 466-486

Abstract: I develop a model in which information problems make it difficult for banks to raise funds with instruments other than insured deposits. The model has a number of implications for bank asset and liability management as well as corporate financing patterns. It also speaks to the question of how monetary policy works: when the Federal Reserve reduces reserves, this tightens banks' financing constraints and leads to both a cutback in the supply of intermediated lending and an increase in bond-market interest rates.

Date: 1998
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Working Paper: An Adverse Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy (1995)
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