Loan Sales and Screening Incentives

Thomas Gehrig, Helmut Bester and ,

No 9084, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze the effect of loan sales on the intensity of costly screening. Loan sales strengthen screening incentives when screening primarily improves the bank?s ability to identify profitable loans and when banks retain most of those profitable loans. However, loan sales dampen screening incentives when the benefit of screening primarily helps to weed out unprofitable projects. Moreover, alternative institutions of information production and the institutional market framework affect the relative benefits and costs of loan sales, and screening respectively. Accordingly, the potential regulation of loan sales has to take into account the whole impact on societal information production, both in markets and non-market institutions.

Keywords: Loan sales; Screening; Securitization (search for similar items in EconPapers)
JEL-codes: D83 G21 G32 L15 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-ban and nep-cta
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Citations: View citations in EconPapers (1)

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