This paper applies the literature on managerial contracts to a particular aspect of the internal organization of the bank: the setting of the price at which to trade internal funds. If there is separation of ownership and control, the internal price of funds is a crucial variable for designing optimal incentive schemes. It is shown that, when there is competition for loans, it is optimal, from the owner point of view, to set the internal transfer price of funds at a different level from the interbank market rate so that the manager will behave more aggressively.

Cerasi, V. (1996). The Determination of the Internal Price of Funds and the Internal Organization of the Bank. ECONOMIC NOTES, 25(3), 483-498.

The Determination of the Internal Price of Funds and the Internal Organization of the Bank

CERASI, VITTORIA
1996

Abstract

This paper applies the literature on managerial contracts to a particular aspect of the internal organization of the bank: the setting of the price at which to trade internal funds. If there is separation of ownership and control, the internal price of funds is a crucial variable for designing optimal incentive schemes. It is shown that, when there is competition for loans, it is optimal, from the owner point of view, to set the internal transfer price of funds at a different level from the interbank market rate so that the manager will behave more aggressively.
Articolo in rivista - Articolo scientifico
Internal organization; Bank competition
English
1996
25
3
483
498
none
Cerasi, V. (1996). The Determination of the Internal Price of Funds and the Internal Organization of the Bank. ECONOMIC NOTES, 25(3), 483-498.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/8480
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