Bank Credit Commitments, Credit Rationing, and Monetary Policy
When loan needs are uncertain and bankruptcy is costly, contracts resembling bank credit commitments dominate ordinary debt contracts. The fees charged on commitments reduce bankruptcy risk by smoothing out borrowers' loan payments. Reduced bankruptcy risk entitles borrowers to larger loans, thereby reducing the risk of quantity rationing. Even if commitments reduce rationing risk, monetary policy is not necessarily weaker under commitment finance. A rise in lenders' cost of funds, perhaps reflecting a monetary contraction, can reduce the expected value of a project more under a commitment than under an ordinary debt contract. Copyright 1994 by Ohio State University Press.
Volume (Year): 26 (1994)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 |
When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:26:y:1994:i:1:p:87-101. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.