Some economists argue that a monetary tightening shifts the supply schedule of bank loans left, thereby forcing bank-dependent borrowers to cut back on expenditures. This is the credit view. In the literature, the credit view is typically studied in a closedeconomy context. In reality, however, banks make international loans through their overseas branches and subsidiaries. This short paper tes...

We analyze the relation between comprehensive measures of board quality and the cost as well as the non-price terms of bank loans. We show that firms with higher quality boards and even a single (non-insider) advisory board member borrow at lower interest rates. This relation exists even after controlling for ownership structure, CEO compensation policy, and shareholder protection as well as th...

Financial derivatives commonly contain pre-mature termination clauses, which are embedded rights held by the holder or writer. Well known examples of these stopping rights include the early exercise right in American options, the callable right in callable securities and the prepayment right in mortgage loans. In this paper, we show how to model the mortgagor’s prepayment in mortgage loans and ...

This paper investigates the e¤ects on the asset market of bank actions in dealing with their non-performing loans. It is demonstrated that liquidation of bad loans may not be as detrimental to asset prices as commonly argued, because funds recouped from liquidation can be recycled into new loans which support the asset market. While capital regulation protects the health of banks, it may limit ...

We model the effects on banks of the introduction of a market for credit derivatives; in particular, credit-default swaps. A bank can use such swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger the bank’s financial distress. Because credit derivatives are more flexible at transferring risks than are other, more established ...

This paper argues that banks must be sufficiently levered to have first-best incentives to make new risky loans. This result, which is at odds with the notion that leverage invariably leads to excessive risk taking, derives from two key premises that focus squarely on the role of banks as informed lenders. First, banks finance projects that they do not own, which implies that they cannot extrac...

This is a very nice paper, well motivated and based on a unique dataset. Using loan-level data from community banks entering Federal Deposit Insurance Corporation (FDIC) receivership, the paper estimates the probability of default (PD) and loss-given default (LGD) of two distinct types of commercial real estate (CRE) loans. The authors also compare commercial real estate loans in community bank...

Identifying and measuring the impact of public support to industry is a difficult task. Recent OECD studies analyse transfers to industrial firms which are categorised in two groups: the first consisting of money transfers (for R&D and innovation contracts, and for procurement of innovated products and processes); the second of financial incentives (regular grants, reimbursable grants, interest...

Sometimes communities are unable to get state or federal lawmakers to deal with concerns communities face every day. For example, consumers have consistently expressed a desire for meaningful regulation of small dollar, highcost loans, like payday and title loans, but federal and state legislatures have not always moved toward meaningful regulation. This inaction results from a number of factor...

To sustain growth in an aging economy, it is important to ease the financing of small firms by bank loans. Using bank internal data of small business loans in Germany, we examine the determinants of loan rates in the period 1995-2010. Beyond characteristics of the firm, the loan contract, and the lending relationship, demographic aspects matter. However, collateral and relationship lending play...