Credit Rationing Effects of Credit Value-at-Risk
2004-03-12
Research Paper
This publication is part of collection
| Related Files |
|---|
View PDF Version
(2004-0322.pdf, 0.3MB) |
Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore reduces the risk of the bank loan portfolio. However, CVaR regulation distorts the operation of credit markets. We show that a binding CVaR constraint introduces credit rationing and lowers social welfare. CVaR regulation also affects the operation of monetary policy.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- G21 : Banks; Other Depository Institutions; Mortgages
- E43 : Determination of Interest Rates; Term Structure of Interest Rates
- D45 : Rationing; Licensing
- D82 : Asymmetric and Private Information
Automatically Extracted Terms
- credit
- deposit
- market
- regulation
- equilibrium
- welfare
- credit rationing
- supply
- model
- deposit rate
- constraint
- effect
- rationing
- demand
- cvar regulation
- bank loans
- quality
- interest
- capital
- interest rate r
