Working Paper No. 22
By Joanna Paisley
This paper examines the interest rate setting behaviour of societies since the breakdown of the interest rate cartel in 1984. Societies have faced increasing competition in the mortgage and savings market over this period, against a backdrop of radical regulatory change. The paper develops a profit maximising model of societies. The econometric analysis suggests that societies' interest rates are driven by market rates. However, the structural changes during the estimation period make it unlikely that the relationships found are stable.
A model of building society interest rate setting