Some New Evidence on the Role of Collateral: Lazy Banks or Diligent Banks?

This file is part of IDEAS, which uses RePEc data

Some New Evidence on the Role of Collateral: Lazy Banks or Diligent Banks?

Author Info

Amedeo Argentiero (University of Rome Tor Vergata - Dept. of Economics and ISAE - Institute for Studies and Economic Analyses)

Additional information is available for the following registered author(s):

Amedeo Argentiero

Abstract

In the banking literature (Manove et al. (2001)) "Lazy Banks" are defined as those banks that substitute project screening with collateral. This paper aims to test for Italy some empirical implications of the theoretical model of "Lazy Banks": the negative relationship between collateral and project screening, whether collateral is posted by safer borrowers and law enforcement is able to increase the degree of collateralization. Empirical evidence presented here suggests that, both for long-term loans and short-term ones, when project screening increases, the amount of real guarantees with respect to the credit granted increases. Moreover, the data show that collateral seems to be posted by high-risk borrowers and law enforcement does not matter in explaining the presence of real guarantees for long-term loans, whereas it represents a further risk component that generates an increase in collateral for short-term loans. Therefore, a model of "Lazy Banks" does not seem to be verified on the data, suggesting the results rather a sort of "diligence" in the banks' behavior. Furthermore, the empirical findings on our data reveal that the presence of real guarantees is not able to lower ex-post default credit risk. These results are consistent with a view of collateral as a credible mechanism for commitment against informative asymmetries and not as a convenient hedge against realized ex-post credit default risk.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

Publisher Info
Paper provided by ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY) in its series ISAE Working Papers with number 113.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 61 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:isa:wpaper:113

Contact details of provider:
Postal: Piazza dell'Indipendenza, No. 4, 00185 Rome
Fax: +39-06-44482219
Email:
Web page: http://www.isae.it
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Anita Guelfi).

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-10-17 (All new papers)
NEP-CTA-2009-10-17 (Contract Theory & Applications)
NEP-PPM-2009-10-17 (Project, Program & Portfolio Management)
NEP-RMG-2009-10-17 (Risk Management)

Statistics

Access and download statistics

Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.

This page was last updated on 2009-11-13.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.