To ask or not to ask: collateral vs screening in lending relationships

Hans Degryse, Artashes Karapetyan and Sudipto Karmakar

No 778, Bank of England working papers from Bank of England

Abstract: We study the impact of higher capital requirements on banks’ decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-à-vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level data set covering all corporate loans in Portugal, we identify a novel channel of higher capital requirements: relative to the control group, treated banks require loans to be collateralized more often after the shock, but less so for relationship borrowers. This applies in particular for collateral that saves more on regulatory capital.

Keywords: Capital requirements; collateral; relationship lending; lending technology (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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