The Behaviour of Deposit Institutions on Deposit and Loans Market

In the paper behaviour of deposit institutions on the deposit and loans market is analysed. Perfect competition model is built on ground production approach (i.e. industrial organisation approach). A competitive bank will adjust its volume of loans and deposit in such a way that the corresponding intermediation margins equal its marginal management cost. The analyse of monopolistic bank model shows rather intuitive result that intermediate margins are higher when banks have a higher market power.