Loan Sales and Screening Incentives
AbstractWe analyze the effect of loan sales on the intensity of costly screening. Loan sales strengthen screening incentives when screening primarily improves the bank’s ability to identify profitable loans and when banks retain most of those profitable loans. However, loan sales dampen screening incentives when the benefit of screening primarily helps to weed out unprofitable projects. Moreover, alternative institutions of information production and the institutional market framework affect the relative benefits and costs of loan sales, and screening respectively. Accordingly, the potential regulation of loan sales has to take into account the whole impact on societal information production, both in markets and non-market institutions.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9084.
Date of creation: Sep 2012
Date of revision:
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Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
- NEP-BAN-2012-10-06 (Banking)
- NEP-CTA-2012-10-06 (Contract Theory & Applications)
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