Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2004-03-15
Number: 04-032/2
Author-Name: Jan Frederik Slijkerman
Author-Email: JSlijkerman@AEGON.NL
Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam
Author-Name: David J.C. Smant
Author-Email: smant@few.eur.nl
Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam
Author-Name: Casper G. de Vries
Author-Email: cdevries@few.eur.nl
Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam
Title: Credit Rationing Effects of Credit Value-at-Risk
Abstract: 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.
Classification-JEL: D45; D82; E43; G21
Keywords: Credit rationing; Credit Value-at-Risk; asymmetric information; banks; regulation; loans
File-Url: https://papers.tinbergen.nl/04032.pdf
File-Format: application/pdf
File-Size: 293207 bytes
Handle: RePEc:tin:wpaper:20040032