Asset Transfer Measurement Rules

59 Pages Posted: 12 Feb 2021

See all articles by Lucas Mahieux

Lucas Mahieux

Tilburg University - Tilburg University School of Economics and Management

Haresh Sapra

Booth School of Business, University of Chicago

Gaoqing Zhang

University of Minnesota - Twin Cities - Department of Accounting

Date Written: December 16, 2020

Abstract

We study the design of measurement rules when banks engage in loan transfers in secondary credit markets. Our model incorporates two standard frictions: 1) banks' monitoring incentives decrease in loan transfers, and 2) banks have private information about loan quality. Under only the monitoring friction, we find that the optimal measurement rule sets the same measurement precision regardless of bank characteristics, and strikes a balance between disciplining banks' monitoring efforts vs. facilitating efficient risk sharing. However, under both frictions, uniform measurement rules are no longer optimal but induce excessive retention, thus inhibiting efficient risk sharing. We show that the optimal measurement rule should be contingent on the amount of loan transfers. In particular, measurement decreases in the amount of loan transfers and no measurement should be allowed when banks have transferred most of their loans. We relate our results to current accounting standards for asset transfers.

Keywords: Asset Transfer Measurement Rules, Loan Sale, Securitization, Risk Transfer, Financial Institutions

JEL Classification: G21, G28, M41, M48

Suggested Citation

Mahieux, Lucas and Sapra, Haresh and Zhang, Gaoqing, Asset Transfer Measurement Rules (December 16, 2020). Available at SSRN: https://ssrn.com/abstract=3688515 or http://dx.doi.org/10.2139/ssrn.3688515

Lucas Mahieux (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Haresh Sapra

Booth School of Business, University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Gaoqing Zhang

University of Minnesota - Twin Cities - Department of Accounting ( email )

321 19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://https://carlsonschool.umn.edu/faculty/gaoqing-zhang

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