This paper derives the equilibrium time series processes characterizing the prices of bonds which differ by maturity using the CAPM relationship between expected returns. The assumption of rational expectations requires that asset demand behavior, which determines bond prices in equilibrium, be based on the covariances among returns that are implied by the assumption of market clearing. This requirement imposes nonlinear restrictions on the parameters in the solution for bond prices. Some implications for the types of comparative static exercises for which it is legitimate to assume invariant demand functions are discussed, and some numerical solutions for bond prices are derived.

Removing interest rate ceilings on bank deposits or reducing the tax rate applicable to the interest earned on such deposits are alternative means of increasing the after‐tax return to depositors. These alternatives, however, have differing impacts on the structure of a competitive banking industry. This paper develops a model which focuses on a bank's choice between paying an explicit interest rate on its deposits and paying a return in the form of services. The model allows banks to differ in their production technologies and depositors in their marginal tax rates and preferences for services. The effects of tax rate changes and a ceiling on the explicit deposit interest rate are analyzed.