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Asymmetric Information and Credit Rationing : Another View of Industrial Bank Lending and Britain's Economic Problem

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  • Cable, John
  • Turner, Paul

Abstract

British clearing banks have often been attacked over their provision of industrial finance. Lever and Edwards (1980) and Edwards and Carrington (1979) are among the more recent critics ; in their view the failings of the banks in this area are a major cause of Britain's relative economic decline. They emphasize the distortion of the credit system towards easy credit for consumption (especially housing) and away from productive investment. They argue that 'excessively cautious' lending policies on the part of the banks are to blame, rather than any lack of industrial projects which are viable by international standards. They describe industrial finance in the UK as 'short term, dear, unreasonably restricted in amounts, carrying legal risks, and subject to excessive security requirements', in comparision with that provided in countries such as West Germany and Japan.

Suggested Citation

  • Cable, John & Turner, Paul, 1983. "Asymmetric Information and Credit Rationing : Another View of Industrial Bank Lending and Britain's Economic Problem," The Warwick Economics Research Paper Series (TWERPS) 228, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:228
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/1978-1988/twerp228.pdf
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    References listed on IDEAS

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    1. Wilson, Charles A, 1979. "Anticipated Shocks and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 639-647, June.
    2. Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 133-150, April.
    3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    4. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    5. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    6. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    7. Flood, Robert P & Garber, Peter M, 1980. "Market Fundamentals versus Price-Level Bubbles: The First Tests," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 745-770, August.
    8. Olivier Jean Blanchard, 1980. "The Monetary Mechanism in the Light of Rational Expectations," NBER Chapters,in: Rational Expectations and Economic Policy, pages 75-116 National Bureau of Economic Research, Inc.
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