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Collateral Booms and Information Depletion

Author

Listed:
  • Vladimir Asriyan
  • Luc Laeven
  • Alberto Martín

Abstract

We develop a new theory of information production during credit booms. Entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources. Lenders can protect themselves from such diversion in two ways: collateralization, and costly screening that generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values make it possible to reallocate resources towards productive projects, but they also crowd out screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), economic activity expands but the economy’s stock of information on existing projects gets depleted. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing projects, which takes time to rebuild. We provide empirical support for the mechanism using US firm-level data.

Suggested Citation

  • Vladimir Asriyan & Luc Laeven & Alberto Martín, 2022. "Collateral Booms and Information Depletion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(2), pages 517-555.
    • Handle: RePEc:oup:restud:v:89:y:2022:i:2:p:517-555.
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    File URL: http://hdl.handle.net/10.1093/restud/rdab046
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Collateral Booms and Information Depletion
      by Christian Zimmermann in NEP-DGE blog on 2018-12-13 15:49:27

    Citations

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    Cited by:

    1. Mikel Bedayo & Gabriel Jiménez & José-Luis Peydró & Raquel Vegas, 2020. "Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures," Working Papers 1215, Barcelona School of Economics.
    2. Shen, Yu & Ren, Meixu & Zhao, Jingmei, 2023. "Bank competition and zombie company: Empirical evidence from China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 297-318.
    3. Farboodi, Maryam & Kondor, Péter, 2023. "Cleansing by tight credit: Rational cycles and endogenous lending standards," Journal of Financial Economics, Elsevier, vol. 150(1), pages 46-67.
    4. Samuel K. Hughes & Joseph B. Nichols, 2025. "No News is Bad News: Monitoring, Risk, and Stale Financial Performance in Commercial Real Estate," Finance and Economics Discussion Series 2025-032, Board of Governors of the Federal Reserve System (U.S.).
    5. Wei, Jianxing & Xu, Tong, 2024. "Banking supervision with loopholes," European Economic Review, Elsevier, vol. 161(C).
    6. Mircea Epure & Serhat Hasancebi, 2025. "The Opaque Scorecard: Environmental, Social and Financial Information During a Crisis," Working Papers 1543, Barcelona School of Economics.
    7. Gabriel, Ricardo Duque, 2024. "The Credit Channel of Public Procurement," Journal of Monetary Economics, Elsevier, vol. 147(S).
    8. Gemmi, Luca, 2024. "Rational overoptimism and limited liability," Journal of Monetary Economics, Elsevier, vol. 143(C).
    9. Biswas, Sonny, 2023. "Collateral and bank screening as complements: A spillover effect," Journal of Economic Theory, Elsevier, vol. 212(C).
    10. Vincenzo Cuciniello & Nicola Di Iasio, 2025. "Determinants of the Credit Cycle: A Flow Analysis of the Extensive Margin," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(5), pages 1275-1298, August.
    11. Asano, Koji, 2024. "Ignorant experts and financial fragility," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    12. Vladimir Asriyan & Luc Laeven & Alberto Martin & Alejandro Van der Ghote & Victoria Vanasco, 2025. "Falling Interest Rates and Credit Reallocation: Lessons from General Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(4), pages 2197-2227.
    13. Matt Darst & Ehraz Refayet & Alexandros Vardoulakis, 2020. "Macroprudential Regulation and Lending Standards," Finance and Economics Discussion Series 2020-086r1, Board of Governors of the Federal Reserve System (U.S.), revised 25 Jun 2025.
    14. Ren, Meixu & Zhao, Jingmei & Ke, Konglin & Li, Yidong, 2023. "Bank homogeneity and risk-taking: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 142-154.
    15. Franklin Allen & Gadi Barlevy & Douglas Gale, 2022. "Asset Price Booms and Macroeconomic Policy: A Risk-Shifting Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 243-280, April.
    16. Straub, Ludwig & Ulbricht, Robert, 2015. "Endogenous Uncertainty and Credit Crunches," TSE Working Papers 15-604, Toulouse School of Economics (TSE), revised Dec 2017.
    17. Alejandro Van der Ghote & Luc Laeven & Victoria Vanasco & Alberto Martin & Vladimir Asriyan, 2021. "Falling Interest Rates and Credit Misallocation: Lessons from General Equilibrium," Working Papers 1268, Barcelona School of Economics.
    18. Laura Nowzohour & Livio Stracca, 2020. "More Than A Feeling: Confidence, Uncertainty, And Macroeconomic Fluctuations," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 691-726, September.
    19. Maryam Farboodi & Péter Kondor, 2020. "Rational Sentiments and Economic Cycles," NBER Working Papers 27472, National Bureau of Economic Research, Inc.
    20. Kyriakos T. Chousakos & Gary B. Gorton & Guillermo Ordoñez, 2020. "The Macroprudential Role of Stock Markets," NBER Working Papers 27113, National Bureau of Economic Research, Inc.
    21. Jaccard, Ivan, 2021. "Leveraged property cycles," Working Paper Series 2539, European Central Bank.
    22. Péter Fáykiss & Erzsébet-Judit Rariga & Márton Zsigó, 2019. "Portfolio Cleaning of Problem Project Loans in Hungary – Experiences Related to the Systemic Risk Buffer, as a Targeted Macroprudential Instrument," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(3), pages 52-82.
    23. Bank for International Settlements, 2022. "Private sector debt and financial stability," CGFS Papers, Bank for International Settlements, number 67.

    More about this item

    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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