Risky Banking and Credit Rationing

Pedro Elosegui and Anne P. Villamil ()
Additional contact information
Anne P. Villamil: University of Illinois at Urbana-Champaign

Ensayos Económicos, 2007, vol. 1, issue 49, 33-64

Abstract: In this paper a bank faces excess demand in the loan market, can sort loan applicants by an observable measure of quality, and faces a small but positive probability of default. The bank uses two policies to allocate credit: (i) tighten restrictions on loan quality; (ii) limit the number of loans of a given quality. We show that the level of default risk and other structural conditions have important effects on the market for loanable funds and the bank’s optimal policies (loan rates, deposit rates, and lending standards). The structural conditions that we examine are monitoring costs, returns on alternative investments, firms’ minimum funding requirements, and the level of the reserve requirement. The model provides insight into several stylized facts observed in loan markets, especially in developing countries.

Keywords: banks; credit rationing; default risk; developing countries; interest rate spreads; monitoring costs (search for similar items in EconPapers)
JEL-codes: G10 G32 (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.bcra.gov.ar/pdfs/investigaciones/Riesgo ... o%20de%20credito.pdf Spanish version (versión en Español) (application/pdf)

Related works:
Working Paper: Risky Banking and Credit Rationing (2007)
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: https://EconPapers.repec.org/RePEc:bcr:ensayo:v:1:y:2007:i:49:p:33-64

Access Statistics for this article

Ensayos Económicos is currently edited by Germán Feldman

More articles in Ensayos Económicos from Central Bank of Argentina, Economic Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Federico Grillo ().