This paper uses a microeconomic approach to analyze the bank lending behavior in Indonesia during 2001:1 – 2005:7. The loan supply function is derived from the structural loan supply and demand equation in a Cournot-Oligopoly market. We treat the loan supply function as structural error component of the model, and apply to data of the 15 biggest banks in Indonesia. The proposed hypothesis; the bank engages in the profit maximization, cannot be rejected. This bank behavior is in conjunction with the bank’s interdependency. However, due to the internal inefficiency of the bank, the profit maximization behavior does not refflect the ideal condition of the banking intermediation function, not int the loan volume nor in the lending rate. Morever, the bank’s lending behavior respond positively with the loan rate, responds negatively on the interest liability (time deposit interest) and respond negatively on the investment alternative (the SBI). In addition, the SBI rate as a monetary policy instrument is not effective relative to loan interest rate to guide the banks in choosing between these two portfolio investments.