Collateralization, Bank Loan Rates, and Monitoring

GERALDO CERQUEIRO; Steven Ongena; KASPER ROSZBACH

doi:10.1111/jofi.12214

journal article May 11, 2016

Collateralization, Bank Loan Rates, and Monitoring

GERALDO CERQUEIRO Steven Ongena

KASPER ROSZBACH

The Journal of Finance Vol. 71 No. 3 pp. 1295-1322 · Wiley

View at Publisher Save 10.1111/jofi.12214

Abstract

ABSTRACTWe show that collateral plays an important role in the design of debt contracts, the provision of credit, and the incentives of lenders to monitor borrowers. Using a unique data set from a large bank containing timely assessments of collateral values, we find that the bank responded to a legal reform that exogenously reduced collateral values by increasing interest rates, tightening credit limits, and reducing the intensity of its monitoring of borrowers and collateral, spurring borrower delinquency on outstanding claims. We thus explain why banks are senior lenders and quantify the value of claimant priority.

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245

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References

Details

Published: May 11, 2016
Vol/Issue: 71(3)
Pages: 1295-1322
License: View

Authors

Cite This Article

GERALDO CERQUEIRO, Steven Ongena, KASPER ROSZBACH (2016). Collateralization, Bank Loan Rates, and Monitoring. The Journal of Finance, 71(3), 1295-1322. https://doi.org/10.1111/jofi.12214

Collateralization, Bank Loan Rates, and Monitoring

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