All banks are interested in maximizing the spread between their
deposit and loan interest rates. In this regard, Eurobanks are no different
from domestic banks. All banks are also concerned with managing risk,
the risk associated with their assets and liabilities. Like all intermediaries,
Eurobanks tend to borrow short term and lend long term. Thus, if the
deposit liabilities were reduced greatly, we would see deposit interest rates
rise very rapidly in the short run. The advantage of matching the term
structures of deposits and loans is that deposits and loans are maturing at
the same time, so that the bank is better able to respond to a change in
demand for deposits or loans.
All banks are interested in maximizing the spread between theirdeposit and loan interest rates. In this regard, Eurobanks are no differentfrom domestic banks. All banks are also concerned with managing risk,the risk associated with their assets and liabilities. Like all intermediaries,Eurobanks tend to borrow short term and lend long term. Thus, if thedeposit liabilities were reduced greatly, we would see deposit interest ratesrise very rapidly in the short run. The advantage of matching the termstructures of deposits and loans is that deposits and loans are maturing atthe same time, so that the bank is better able to respond to a change indemand for deposits or loans.
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