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Toward a Theory of Bank Loan Commitments


  • Anjan V. Thakor

    (Washington University in St. Louis)


The characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent-claims framework, and valuation expressions are derived for these commitments. The valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments. Finally, a simple, two-period, asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts.

Suggested Citation

  • Anjan V. Thakor, 2004. "Toward a Theory of Bank Loan Commitments," Finance 0411048, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0411048
    Note: Type of Document - pdf; pages: 29

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    References listed on IDEAS

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    7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    Cited by:

    1. Stojanovic, Dusan & Vaughan, Mark D. & Yeager, Timothy J., 2008. "Do Federal Home Loan Bank membership and advances increase bank risk-taking?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 680-698, May.
    2. Deborah Lucas & Robert L. McDonald, 1987. "Bank Financing and Investment Decisions with Asymmetric Information," NBER Working Papers 2422, National Bureau of Economic Research, Inc.
    3. repec:eee:corfin:v:46:y:2017:i:c:p:261-283 is not listed on IDEAS
    4. Chava, Sudheer & Jarrow, Robert, 2008. "Modeling loan commitments," Finance Research Letters, Elsevier, vol. 5(1), pages 11-20, March.
    5. Chateau, J.-P. & Wu, J., 2007. "Basel-2 capital adequacy: Computing the `fair' capital charge for loan commitment `true' credit risk," International Review of Financial Analysis, Elsevier, vol. 16(1), pages 1-21.
    6. Chateau, J. -P. & Dufresne, D., 2002. "The stochastic-volatility American put option of banks' credit line commitments:: Valuation and policy implications," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 159-181.
    7. Houston, Joel F. & Venkataraman, S., 1996. "Liquidation under moral hazard: Optimal debt maturity and loan commitments," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 115-133, January.
    8. Chateau, John-Peter D., 2009. "Marking-to-model credit and operational risks of loan commitments: A Basel-2 advanced internal ratings-based approach," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 260-270, December.
    9. Chateau, John-Peter D., 2007. "Beyond Basel-2 simplified standardized approach: Credit risk valuation of short-term loan commitments," International Review of Financial Analysis, Elsevier, vol. 16(5), pages 412-433.

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    • G - Financial Economics

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