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Regulators vs. markets: Are lending terms influenced by different perceptions of bank risk?

Author

Listed:
  • Manthos D. Delis

    (Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School)

  • Suk-Joong Kim

    (The University of Sydney Business School)

  • Panagiotis N. Politsidis

    (Audencia Business School)

  • Eliza Wu

    (The University of Sydney Business School)

Abstract

In this paper we quantify the differences between market and regulatory assessments of bank portfolio risk, and thereby demonstrate that larger differences significantly reduce corporate lending rates. Specifically, to entice borrowers, banks reduce spreads by approximately 4.3% following a one standard deviation increase in our measure for bank asset-risk differences. This is equivalent to an interest income loss of USD 2.03 million on a loan of average size and duration. The separate effects of market and regulatory risk are much less potent. Our study reveals a disciplinary-competition effect in favor of corporate borrowers when there is information asymmetry between investors and bank regulators.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Manthos D. Delis & Suk-Joong Kim & Panagiotis N. Politsidis & Eliza Wu, 2021. "Regulators vs. markets: Are lending terms influenced by different perceptions of bank risk?," Post-Print hal-03010194, HAL.
  • Handle: RePEc:hal:journl:hal-03010194
    DOI: 10.1016/j.jbankfin.2020.105990
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03010194
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G2 - Financial Economics - - Financial Institutions and Services

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