How can the worsening of a small part of the loan market lead to a crash as well as a prolonged depression in secondary loan prices, bank equity prices, and lending activity? This paper seeks to answer this question. We present a model in which banks issue long-term loans and finance them with repurchase agreements (“repos”) from short-term lenders in order to leverage up their equity. Banks di...

This paper studies the effects of labor market outcomes on firms’ loan demand and credit intermediation. In a first step, I investigate how wages in production sector affect bank net worth process financial intermediation partial equilibrium. Second, role identified channels are studied general equilibrium using new- Keynesian DSGE-model with frictions an endogenous accelerator mechanism. Third, pe...

This paper is concerned with stock loan valuation in which the underlying stock price is dictated by geometric Brownian motion with regime switching. The stock loan pricing is quite different from that for standard American options because the associated variational inequalities may have infinitely many solutions. In addition, the optimal stopping time equals infinity with positive probability....

This policy brief advances the growing literature on how student loan debt affects individuals’ other economic decisions. Specifically, it examines the impact of student loan liabilities on individuals’ homeownership status and wealth accumulation. The analysis employs a rich set of financial and demographic control variables that are not available in many of the existing studies that use credi...

We consider a lender (bank) who determines the optimal loan price (interest rates) to offer to prospective borrowers under uncertain risk and borrower response. A borrower may or may not accept the loan at the price offered, and in the presence of default risk, both the principal loaned and the interest income become uncertain. We present a risk-based loan pricing optimization model, which expl...

This paper uses unique SME loan-level data complete with quarterly loan ratings assigned by the lending institution over the period 2008-2010. This allows us to examine the evolution of loan performance throughout the period of economic and financial crisis. We document the shift in the distribution of loans across ratings as economic conditions deteriorated, but also show that this effect was ...

We study a transitional economy where state-controlled banks make loan decisions based on noisy inside information on prospective borrowers, and may lend to avert unemployment and social instability. In China, poor financial performance and high managerial expenses increase the likelihood of obtaining a bank loan, and bank loan approval predicts poor subsequent borrower performance. Negative ev...

A stock loan is a loan, secured by a stock, which gives the borrower the right to redeem the stock at any time before or on the loan maturity. The way of dividends distribution has a significant effect on the pricing of the stock loan and the optimal redeeming strategy adopted by the borrower. We present the pricing models subject to various ways of dividend distribution. Since closed-form pric...

The aim of this article is to produce a comprehensive analysis of the performance of microfinance institutions (MFIs) in terms of repayment. We use 1629 loan observations to analyze with a probit the determinants of the repayment performance of borrowers of the BRAC, the BRDB and the Grameen Bank. We test for endogeneity of the size and duration of the loan in the determination of repayment and...