To date, there is no consensus about how frictions in the credit market affect the transmission of the monetary policy to the real economy. The traditional money channel states that when the Central Bank reduces its reserves, commercial banks are forced to reduce their demand for deposits. If prices are sticky, in the short-run a decrease in real monetary holdings should lead to higher real int...

The Internal Ratings Based (IRB) approach suggested in the New Basel Accord regulations (BIS 2005) uses a capital allocation formula derived from a Merton style structural model of the credit risk of portfolios of corporate loans. Yet this formula is being applied in the case of consumer loans as well as corporate loans. This has highlighted that although there are a number of well established ...

We investigate differences in the characteristics and performance of securitized loans versus loans held on lenders’ balance sheets using a unique data set of commercial mort­ gages. The main findings are as follows. First, consistent with risk-sharing being a likely reason for securitization, loan size strongly predicts the likelihood of securiti­ zation. The largest 10% of loans have a 44% ch...

Dynamic incentives, where incentives to repay are generated by granting access to future loans, is one of the methodologies used by microfinance institutions (MFIs). In this paper, I present a model of dynamic incentives where lenders are uncertain over how much borrowers value future loans. Loan terms are determined endogenously, and loans become more favorable as the probability of default be...

Abstract: At the macro level, the time-series of the amounts of loans granted (a flow) and repaid (a flow) to the banking system in each period are not available. The information on these flows is important in many analyses, such as the impact of the bank lending on investment outlays. However, one can get the information concerning the structure of loans (a stock variable) regarding their dura...

We present a banking model with imperfect competition in which borrowers’ access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is private information, banks have an incentive to grant unprofitable loans in order to transfer them to o...

A student loans scheme (SLS) came into effect recently in Thailand, covering both upper secondary and tertiary level schooling. The central objective of the scheme is social — to increase access of poor students and to prevent student dropout. The loans scheme is highly subsidized owing to the extremely favorable repayment conditions, which in turn calls into question the longer-term financial ...

T he topic of the “credit crunch” received considerable attention during the early 1990s. As a result, several initiatives aimed at eliminating regulatory disincentives to lending were put in place. For example, documentation requirements recently were reduced to the legal minimum for loans to small and medium-sized businesses. Also, examiners and bankers were encouraged to emphasize the charac...

Someone once observed that every decade the real estate industry invents a new vehicle for wealth transfer between the inventors and their investors. During my career we have seen this drama play out many times. New wrinkles in capital markets often lead to disheveled portfolios. In the mid 1970s, major banks seized on the mortgage real estate investment trust (REIT) as a vehicle to make loans ...