Bank lending opportunities and credit standards
AbstractThis article empirically tests the hypothesis that credit-screening standards can be first increasing and then decreasing in the quality of the bank's pool of potential borrowers, which in turn may vary through the business cycle or across different segments of the lending markets. A key implication is that banks with lending opportunities toward the middle of the quality spectrum can have loan portfolios that perform better than do the portfolios of banks with loan-origination opportunities that are either too weak or too strong. Using banks' volume of secondary-market loan sales as a proxy for the richness of lending opportunities, I find an inverse U-shaped relation between the performance of banks' loan portfolios and their activity in the loan sales market. The pattern deserves scrutiny for its policy implications, as many regulators hold the view that countercyclical variation in credit standards may have a destabilizing effect on business cycles.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Stability.
Volume (Year): 4 (2008)
Issue (Month): 1 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jfstabil
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joseph G. Haubrich & James B. Thomson & Raghuram G. Rajan & ary, 1993.
"Loan sales, implicit contracts, and bank structure,"
416, Federal Reserve Bank of Chicago.
- Haubrich, Joseph G & Thomson, James B, 1996. " Loan Sales, Implicit Contracts, and Bank Structure," Review of Quantitative Finance and Accounting, Springer, vol. 7(2), pages 137-62, September.
- Joseph G. Haubrich & James B. Thomson, 1993. "Loan sales, implicit contracts, and bank structure," Working Paper 9307, Federal Reserve Bank of Cleveland.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- Demsetz, Rebecca S, 2000. "Bank Loan Sales: A New Look at the Motivations for Secondary Market Activity," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 23(2), pages 197-222, Summer.
- James, Christopher, 1988. "The use of loan sales and standby letters of credit by commercial banks," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 395-422.
- Rebecca Demsetz, 1993. "Recent trends in commercial bank loan sales," Quarterly Review, Federal Reserve Bank of New York, issue Win, pages 75-78.
- Gary B. Gorton & Joseph G. Haubrich, . "The Loan Sales Market," Rodney L. White Center for Financial Research Working Papers 35-88, Wharton School Rodney L. White Center for Financial Research.
- Takeo Hoshi & Anil Kashyap & David Scharfstein, 1993. "The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan," NBER Working Papers 4421, National Bureau of Economic Research, Inc.
- Sandeep Dahiya & Manju Puri & Anthony Saunders, 2003. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," The Journal of Business, University of Chicago Press, vol. 76(4), pages 563-582, October.
- Boyd, John H. & Prescott, Edward C., 1986.
Journal of Economic Theory,
Elsevier, vol. 38(2), pages 211-232, April.
- Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 404-426, October.
- Gorton, Gary & Winton, Andrew, 2003.
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552
- Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," NBER Working Papers 8928, National Bureau of Economic Research, Inc.
- Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," Center for Financial Institutions Working Papers 02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Berlin, Mitchell & Loeys, Jan, 1988. " Bond Covenants and Delegated Monitoring," Journal of Finance, American Finance Association, vol. 43(2), pages 397-412, June.
- George Pennacchi, .
"Loan Sales and the Cost of Bank Capital,"
Rodney L. White Center for Financial Research Working Papers
07-87, Wharton School Rodney L. White Center for Financial Research.
- George Pennacchi, . "Loan Sales and the Cost of Bank Capital," Rodney L. White Center for Financial Research Working Papers 7-87, Wharton School Rodney L. White Center for Financial Research.
- Philip E. Strahan, 1999. "Borrower risk and the price and nonprice terms of bank loans," Staff Reports 90, Federal Reserve Bank of New York.
- Carlstrom, Charles T. & Samolyk, Katherine A., 1995. "Loan sales as a response to market-based capital constraints," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 627-646, June.
- Steven Drucker & Manju Puri, 2005. "On the Benefits of Concurrent Lending and Underwriting," Journal of Finance, American Finance Association, vol. 60(6), pages 2763-2799, December.
- Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
- Martin Ruckes, 2004. "Bank Competition and Credit Standards," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1073-1102.
- Black, Lamont K. & Hazelwood, Lieu N., 2013. "The effect of TARP on bank risk-taking," Journal of Financial Stability, Elsevier, vol. 9(4), pages 790-803.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.