Lending Competition And Loan Sales: A Macroeconomic Analysis Under Directed Search

We present a macroeconomic analysis of loan sales driven by bank competition in lending and entrepreneur directed search for funding opportunities. We show how these two features of our macrofinance model can interact to reduce interest rates on loans financed via on‐balance‐sheet activities, and how this can motivate loan sales as a strategy of financing via off‐balance‐sheet activities. The results shed some light on the shift over the years preceding the global financial crisis in the practice of U.S. and European banks, from the traditional “originate‐to‐hold” model of credit provision, toward the “originate‐to‐distribute” approach for credit extension. (JEL E44, G21, G24).