Deposits and Relationship Lending
Loretta J. Mester
THE WHARTON FINANCIAL INSTITUTIONS CENTER
The Wharton Financial Institutions Center provides a multi-disciplinary research approach to
the problems and opportunities facing the financial services industry in its search for
competitive excellence. The Center's research focuses on the issues related to managing risk
at the firm level as well as ways to improve productivity and performance.
The Center fosters the development of a community of faculty, visiting scholars and Ph.D.
candidates whose research interests complement and support the mission of the Center. The
Center works closely with industry executives and practitioners to ensure that its research is
informed by the operating realities and competitive demands facing industry participants as
they pursue competitive excellence.
Copies of the working papers summarized here are available from the Center. If you would
like to learn more about the Center or become a member of our research community, please
let us know of your interest.
Anthony M. Santomero
The Working Paper Series is made possible by a generous
grant from the Alfred P. Sloan Foundation
Forthcoming in Review of Financial Studies. We gratefully acknowledge helpful
discussions with David T. Brown, Xavier Freixas, Joel Houston, Steve Meyer, Leonard
Nakamura, Mitchell Petersen, Tony Saunders, seminar participants at the New York Fed,
Philadelphia Fed, University of North Carolina, Temple University, University of
Minnesota, and session participants at the 1996 FMA meetings, 1997 AFA meetings, and
the 1997 System Meeting on Financial Structure. Two anonymous referees and Gary
Gorton (the editor) provided unusually thoughtful and thorough suggestions. We also thank
Avi Peled for Herculean (or as one coauthor prefers, Xenæan) research assistance, and Allen
Berger and Joseph Scalise for generously providing their program for calculating duration.
This paper is a substantial revision o