Loans, Interest Rates and Guarantees: Is There a Link?

Giorgio Calcagnini, Fabio Farabullini and Germana Giombini
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Fabio Farabullini: Banca d'Italia (Italy)

No 904, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

Abstract: This paper aims at shedding light on the influence of guarantees on the loan pricing. After reviewing the literature on the role of guarantees in bank lending decisions, we estimate a bank interest rate model that explicitly includes collateral and personal guarantees as explanatory variables. We show that banks follow different lending policies according to the type of customer. In the case of firms banks seem to efficiently screen and monitor customers, and guarantees (real and personal) are used to reduce moral hazard problems. In the case of consumer households and sole proprietorships banks behave ?lazily? by replacing screening and monitoring activities with personal guarantees. Collateral, instead, is used to separate good from bad customers (i.e., to mitigate adverse selection problems).

Keywords: Banking Crisis; Determination of Interest Rates, Banks, Asymmetric and Private Information. (search for similar items in EconPapers)
JEL-codes: D82 E43 G21 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009, Revised 2009
New Economics Papers: this item is included in nep-ban, nep-cta and nep-mac
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Citations: View citations in EconPapers (5)

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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_09_04.pdf First version, 2008 (application/pdf)

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