An adverse-selection model of bank asset and liability management with implications for the transmission of monetary policy

I develop a model in which information problems make it difficult for banks to raise funds with instruments other than insured deposits. The model has a number of implications for bank asset and liability management as well as corporate financing patterns. It also speaks to the question of how monetary policy works: when the Federal Reserve reduces reserves, this tightens banks' financing constraints and leads to both a cutback in the supply of intermediated lending and an increase in bond-market interest rates.