Do loan interest rate margins and loan fees move in the same direction and are they jointly determined?

Marc Cowling and Huan Yang

Finance Research Letters, 2024, vol. 60, issue C

Abstract: A standard UK debt contract has two price components, the interest rate margin which is paid ex post and the up-front fee which is paid ex ante. The interest rate margin reflects risk, whilst the up-front fee is a mechanism for banks to price contract options and to screen borrowers, thus we cannot treat the fee as exogenous in interest rate margins as interest rate margins and fees may be jointly determined. Our empirical evidence shows that the two are indeed jointly determined, but that interest rate margins have a stronger (positive) effect on loan fees than vice-versa.

Keywords: Loan interest rate margins; Loan fees; Small firms; Loan guarantee schemes (search for similar items in EconPapers)
JEL-codes: G21 G32 L11 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012837

DOI: 10.1016/j.frl.2023.104911

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