A Symmetric-Information Model of Credit Rationing

Posted: 8 Apr 1997

See all articles by Michael F. Ferguson

Michael F. Ferguson

University of Cincinnati - Department of Finance - Real Estate

Stephen R. Peters

Kansas State University - Department of Finance

Date Written: Undated

Abstract

We develop a model of credit rationing that does not rely on asymmetric information or an exogenous constraint on the supply of loanable funds. This implies that rationing equilibria arise under more general condition, and therefore may be more prevalent, than commonly believed. The model illustrates how credit rationing can occur as the result of a portfolio effect (such as diversification or a regulatory cost) that is not directly related to the creditworthiness of individual applicants. Notably, rationing occurs in our model only at the margin. Thus, being rationed is a signal of low creditworthiness to other lenders. The model also offers an explanation for why banks may offer a pooling loan rate to all borrowers, even when differences in those borrowers' credit risk are observable.

JEL Classification: G20

Suggested Citation

Ferguson, Michael F. and Peters, Stephen R., A Symmetric-Information Model of Credit Rationing (Undated). Available at SSRN: https://ssrn.com/abstract=8256

Michael F. Ferguson (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
513-556-7080 (Phone)

Stephen R. Peters

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

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