Collateral and bank screening as complements: A spillover effect

• 成果类型: Article
• 署名作者: Biswas, Sonny
• 署名单位: University of Bristol
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105703
• 发表日期: 2023
• 关键词: Collateral; Bank screening; adverse selection; Countervailing incentives

摘要

I analyze a novel spillover effect from collateralized to uncollateralized loans. High-type borrowers have good projects, while low-type borrowers do not know their project quality. High-type borrowers post collateral, and a monopolist bank screens only low-type borrowers ' projects. Different from existing models, equilibrium collateral requirements are stricter than the minimum necessary to achieve separation, even if collateral is costly. When high-type borrowers post more collateral, the bank charges a higher interest rate to low-type borrowers. This, in turn, enhances the bank's incentives to screen the low-types ' projects, thereby improving the average quality of uncollateralized loans. (c) 2023 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).