An Economic Rationale for the Pricing Structure of Bank Loan Commitments

Anjan V. Thakor () and Gregory Udell ()

Finance from EconWPA

Abstract: An economic rationale is provided for the competitive equilibrium deployment of commitment and usage fees in loan commitment pricing. It is shown that, under perfect information, assessing both fees rather than just one permits optimal risk sharing. When the borrower is privately informed about its probability of future commitment utilization, commitment and usage fees can be used to induce borrowers to identify themselves by self-selection through contract choice. The equilibrium characterized here is dissipative and thus raises the usual existence questions which are addressed in the paper.

JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-11-30
Note: Type of Document - pdf; pages: 19
View list of references

Downloads: (external link)
http://129.3.20.41/eps/fin/papers/0411/0411053.pdf (application/pdf)

Related works:
Journal Article: An economic rationale for the pricing structure of bank loan commitments (1987)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411053

Access Statistics for this paper

More papers in Finance from EconWPA
Series data maintained by EconWPA ().