We consider a banking model in which firms’ access to credit is constrained due to the banks’ limited risk-bearing capacities. We show that such constraints may be relaxed by allowing banks to transfer risks to outside investors. However, the market for credit risk transfer (CRT) works smoothly only if loans are based on hard, i. e., verifiable information. In contrast, the market for CRT eithe...

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 ...

  One of the main problems of SMEs is how to finance their investments. The role of banks in this regard is crucial, since they can be a type of sources of financing through lending credits directly to SMEs. The key role of the paper thus relies on analyzing the effect of SMEs financing by the Iranian banking system.   The objective of this paper is to determine the influence of loans demanded...

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...

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...