Lending Technologies and Lending Relationships

48 Pages Posted: 5 Jun 2018

See all articles by Artashes Karapetyan

Artashes Karapetyan

ESSEC Business School

Bogdan Stacescu

BI Norwegian Business School

Date Written: June 4, 2018

Abstract

We examine banks' choice between two costly instruments used to identify good loan applicants: direct screening by acquiring borrower-specific information and collateral requirements. We show that with longer relationships the preference for screening increases both in initial and in later periods. Total welfare is enhanced as a result of more efficient selection, and access to credit can be improved. The model explains the reduced incidence of collateral, and potentially higher interest rates in later periods for safer borrowers. The results are stronger under more intense bank competition. Our findings support policies conducive to enduring lending relationships.

Keywords: Collateral, screening, bank relationships

JEL Classification: G21, L13

Suggested Citation

Karapetyan, Artashes and Stacescu, Bogdan, Lending Technologies and Lending Relationships (June 4, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=3190551 or http://dx.doi.org/10.2139/ssrn.3190551

Artashes Karapetyan

ESSEC Business School ( email )

Avenue Bernard Hirsch
3
Cergy, 95021
France

Bogdan Stacescu (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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