Joint liability among bank borrowers

Philip Bond ()

Economic Theory, 2004, vol. 23, issue 2, 383-394

Abstract: A common feature of financial intermediaries is that the welfare of one borrower is adversely affected by the poor performance of other borrowers. That is, there exists a degree of joint liability among the borrowers of a financial intermediary. This paper provides an explanation for this observation. It demonstrates that in Krasa and Villamil's [14] formalization of a financial intermediary as a delegated monitor, intermediation with joint liability between borrowers Pareto dominates intermediation without joint liability. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Financial intermediation; Banks; Conglomerates; Delegated monitoring; Joint liability; Credit crunch. (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s00199-003-0381-4

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