Collateral value and forbearance lending
By: Nan-Kuang Chen, Hsiao-Lei Chu.
Contributors: Chu, Hsiao-Lei.; London School of Economics and Political Science. Centre for Economic Performance.
Series: Discussion paper ;; no. 603; Discussion paper (London School of Economics and Political Science. Centre for Economic Performance : Online) ;; no. 603.
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2003
Place of publication: [London]
Language: eng
Format: Electronic resource
Subjects: Bank loans -- Mathematical models.
Description: "We investigate the foreclosure policy of collateral-based loans in which the endogenous collateral value plays a crucial role. If creditors are able to commit, then the equilibrium arrangement is more likely to feature forebearance lending by specifying a lower level of liquidation (or roll over all of the loans) relative to the expost efficiency criterion for each realization of the interim signal. The key is that collateral value may drop too low when banks call in loans by auctioning off borrowers' collateral and this makes clearing up non-performing loans less attractive. We attribute the banks' leniency as we have observed in Japan during the 1990s to an equilibrium arrangement where banks can commit due to either relationship banking or an implicit lenderborrower contract, such as the arrangement under Japan's main-bank system"--London School of Economics web site.
Notes: Includes bibliographical references.
Title from summary page as viewed on 1/7/2005.
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