'Keeping it Personal' or 'Getting Real'? On the Drivers and Effectiveness of Personal versus Real Loan Guarantees

54 Pages Posted: 9 May 2017

See all articles by Sergio Mayordomo

Sergio Mayordomo

Banco de España

Antonio Moreno

School of Economics and Business, University of Navarra

Steven Ongena

University of Zurich - Department of Banking and Finance; NTNU Business School; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Maria Rodriguez-Moreno

Banco de España

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2017

Abstract

Little is known about the drivers and effectiveness of personal as opposed to real loan guarantees provided by firms. This paper studies a dataset of 477,209 loan contracts granted over the 2006-2014 period by one Spanish financial institution consisting of several distinguishable organisational units. While personal guarantees are mostly driven by the economic environment as reflected in firm and bank conditions, real guarantees are mostly explained by loan characteristics. In response to higher capital requirements imposed by the European authorities in 2011, personal guarantee requirements increased significantly more than their real counterparts. Our results imply that personal guarantees can discipline firms in their risk-taking, but their overuse can limit this positive effect and damage their performance.

Keywords: banks, asymmetric information, real guarantees, personal guarantees, risk-taking, capital requirements

JEL Classification: D43, E32, G21, G32

Suggested Citation

Mayordomo, Sergio and Moreno, Antonio and Ongena, Steven R. G. and Ongena, Steven R. G. and Rodriguez-Moreno, Maria, 'Keeping it Personal' or 'Getting Real'? On the Drivers and Effectiveness of Personal versus Real Loan Guarantees (May 8, 2017). Banco de Espana Working Paper No. 1715, Available at SSRN: https://ssrn.com/abstract=2964709 or http://dx.doi.org/10.2139/ssrn.2964709

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Antonio Moreno

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

NTNU Business School ( email )

Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maria Rodriguez-Moreno

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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