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Bank Competition, Directed Search, and Loan Sales

Author

Listed:
  • Kevin x.d. Huang

    () (Vanderbilt University)

  • Zhe Li

    () (Shanghai University of Finance and Economics)

  • Jianfei Sun

    () (Shanghai Jiao Tong University)

Abstract

We develop a theory of loan sales based on bank competition and entrepreneur directed search. We show how the interplay of the two can reduce interest rate on loans financed through on-balance-sheet activities and how this can motivate loan sales as a strategy of financing through off-balance-sheet activities. The results shed some light on the shift over the years preceding the recent financial crisis in the practice of U.S. and European banks, from the traditional ‘originate to hold' model of credit provision, towards the ‘originate to distribute' approach for credit extension, that is, the emergence of a ‘shadow banking system'.

Suggested Citation

  • Kevin x.d. Huang & Zhe Li & Jianfei Sun, 2018. "Bank Competition, Directed Search, and Loan Sales," Vanderbilt University Department of Economics Working Papers 18-00001, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:vuecon-sub-18-00001
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bank competition; Directed search; Loan sales; Shadow banking;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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