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To Ask or Not To Ask? Collateral versus Screening in Lending Relationships

Hans Degryse, Artashes Karapetyan and Sudipto Karmakar

No 2018/49, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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

JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2018-09
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