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Loan sales as a response to market-based capital constraints

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  • Carlstrom, Charles T.
  • Samolyk, Katherine A.

Abstract

A model of bank asset sales in which information asymmetries create the incentive for unregulated banks to originate and sell loans to other banks, rather than fund them with deposit liabilities. Private information implies that bankers can fund local loans only to the extent that their capital can absorb potential losses. Loan sales are effectively a means of employing nonlocal bank capital to support local investments.
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Suggested Citation

  • 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.
    • Handle: RePEc:eee:jbfina:v:19:y:1995:i:3-4:p:627-646
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    References listed on IDEAS

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    9. Rebecca Demsetz, 1994. "Economic conditions, lending opportunities, and loan sales," Research Paper 9403, Federal Reserve Bank of New York.
    10. 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.
    11. 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.
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