Relationship Lending in a Financial Turmoil

Foreclosure Reform Amid Mortgage Lending Turmoil: A Public Purpose Approach

Lessons from the Financial Turmoil

On 14–15 July 2008, the Reserve Bank held a conference on ‘Lessons from the Financial Turmoil of 2007 and 2008’. The conference volume, which includes papers and discussions, will be available on 31 October.1 The following is the introductory chapter of the volume by Paul Bloxham (Head of Financial Conditions Section, Economic Analysis Department) and Christopher Kent (Head of the Bank’s Econom...

Financial Distress and Bank Lending Relationships

One of the most important risks faced by a bank is that of loan default by its borrowers. Existing literature has documented the negative announcement-period returns for lending banks when a big sovereign borrower announces a moratorium on its bank loans. In contrast, little research has been undertaken that analyzes bank shareholder wealth effects when a major corporate borrower declares defau...

Lending Booms, Smart Bankers and Financial Crises

This paper develops a theory of financial crises that explains why crises should be expected to follow periods of sustained lending booms and high banking profitability. When the behavior of agents is affected by the availability heuristic and there is a long period of sustained banking profitability, all agents—banks as well as those who fund banks and those who regulate them—end up in an “ava...

Group Lending and Financial Intermediation: An Example

I magine a small group of people, each of whom borrows money from a financial intermediary. The intermediary does not require collateral because the borrowers are relatively poor and do not own much property. Instead, the intermediary requires group members to be jointly liable for each other’s loans. That is, if a member defaults on a loan, the rest of the group is liable for the remainder of ...