Forbearance Lending and Soft Budget Constraints in Multiple Bank Financing

Tobias Schüle

Journal of Institutional and Theoretical Economics (JITE), 2007, vol. 163, issue 3, 448-466

Abstract: Empirical evidence suggests that banks often engage in refinancing of intrinsically insolvent debtors instead of writing off their nonperforming loans. Such forbearance lending may induce soft budget constraints for the debtors, diminishing their incentives to thwart default. This paper introduces a model of coordination failure to analyze how the incidence of forbearance lending and soft budget constraints is affected by a relationship bank that signals its credit decision to other lenders. We find that the relationship bank's signaling ability fosters its willingness to engage in forbearance lending and influencesthe conditions under which debtors face a soft budget constraint.

JEL-codes: C72 D82 G33 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/forbearance ... 28093245607781871417 (text/html)
Fulltext access is included for subscribers to the printed version.

Related works:
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:mhr:jinste:urn:sici:0932-4569(200709)163:3_448:flasbc_2.0.tx_2-g

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().