Abstract

Banking Calculation as a Market Problem (Part II)

The first part of this contribution deals with the theoretical bases of the market interest method and with a conceptual approach to identifying the criteria that would allow alternative portfolios to be developed. The second part analyzes the effects of different approaches to constructing alternative transactions in specific decisionmaking situations in retail banking, e.g loan redemption ahead of schedule. It turns out that the redemption debt can only be calculated through a consistent use of alternative transactions based on congruent redemption terms, i.e. by allowing lenders and borrowers to make economically rational decisions on whether to serve and, respectively, accept notice of termination. It turns out on the basis of analyses of the congruence criteria suggested in the specialized literature and of the implications of such criteria for the decision-making processes of lenders and borrowers that the way pursued in financial theory, i.e. to use duplicates with congruent redemption terms as evaluation basis, would seem to be appropriate also in banking calculation. Financial market innovations and a speedy development of evaluation models will allow ever more complex payment flows to be duplicatad and evaluated. Notwithstanding the need to take account of the internal cost situation when the interest business is calculated, the growing competitive pressure will lead to a situation in which customers increasingly compare lending terms and conditions. The market interest method is undoubtedly appropriate to do justice to such consumer behaviour provided that it is further developed to mee precisely this purpose.