Monitoring and Commitment in Bank Lending Behavior

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Monitoring and Commitment in Bank Lending Behavior

Author Info

Rodolphe Blavy

Abstract

The paper proposes a theoretical argument on the nature of bank lending, based on the idea that, through commitment and monitoring, banks overcome basic informational asymmetries with borrowers. By bringing together loan commitment theories and credit rationing theories, the paper shows that, within a framework of asymmetric information between lenders and borrowers and under costly termination of lending arrangements, commitment may explain the accumulation of nonperforming loans by banks. Two additional results follow: (i) that banks favor borrowers with well-known production functions and long-term credit history; and (ii) that interest rate spreads may be large if significant market imperfections prevail.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/222.

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Length: 34 pages
Date of creation: 13 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/222

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This paper has been announced in the following NEP Reports:

NEP-ALL-2006-03-05 (All new papers)
NEP-BEC-2006-03-05 (Business Economics)
NEP-CFN-2006-03-05 (Corporate Finance)
NEP-FMK-2006-03-05 (Financial Markets)
NEP-MON-2006-03-05 (Monetary Economics)

References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Other versions:
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Melnik, Arie & Plaut, Steven, 1986. " Loan Commitment Contracts, Terms of Lending, and Credit Allocation," Journal of Finance, American Finance Association, vol. 41(2), pages 425-35, June. [Downloadable!] (restricted)
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Morgan, Donald P, 1994. "Bank Credit Commitments, Credit Rationing, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 87-101, February. [Downloadable!] (restricted)
Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March. [Downloadable!] (restricted)
J. G. Haubrich, . "Financial Intermediation: Delegated Monitoring and Long-Term Relationships," Rodney L. White Center for Financial Research Working Papers 9-86, Wharton School Rodney L. White Center for Financial Research.
Other versions:
- J.G. Haubrich, . "Financial Intermediation: Delegated Monitoring and Long-Term Relationships," Rodney L. White Center for Financial Research Working Papers 09-86, Wharton School Rodney L. White Center for Financial Research.
- Haubrich, Joseph G., 1989. "Financial intermediation : Delegated monitoring and long-term relationships," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 9-20, March. [Downloadable!] (restricted)

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