Mental Accounting in the Housing Market

We use a survey to identify a consumer bias with regard to different sources of debt-financing. Less salient debt may generate psychological benefits. This should be weighed against the possible economic costs of a sub-optimal capital structure; but low levels of financial literacy make it unlikely that all households perceive the full economic costs. As a result there is a bias in favour of less salient debt. In a market with limited scope for arbitrage this consumer bias is likely to generate inefficiencies. We examine such a market in both theory and practice. The predictions of our model are given strong support by market data.Household Finance; Mental Accounting; Co-op; Capital Structure

Mental Accounting in the Housing Market

We report evidence that salience may have economically significant effects on homeowners' borrowing behavior, through a bias in favour of less salient but more costly loans. We outline a simple model in which some consumers are biased. Under plausible assumptions, the bias may affect prices in equilibrium. Market data support the predictions of the model.salience; housing market; household finance; co-op; capital structure

To ask or not to ask? Collateral versus screening in lending relationships

We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans.We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This experiment makes secured lending more attractive vis-à- vis unsecured lending for the affected banks as secured loans require less regulatory capital. Using a loan-level dataset covering all corporate loans in Portugal, we identify a novel channel of tighter capital requirements: relative to the control group and after the shock, treated banks require loans more often to be collateralized but less so for relationship borrowers. We further find this impact is stronger for collateral that saves more on regulatory capital.info:eu-repo/semantics/publishedVersio

Credit, House Prices, and Risk Taking by Banks in Norway

Motivated by alternative explanations of the financial crisis (e.g., Acharya and Richardson, 2010; Taylor, 2007), I study, first, repercussions between house price growth and household credit growth in Norway, and second, I analyse the impact of expansionary monetary policy on measures of bank portfolio risk (the risk-taking channel). Using aggregate quarterly data from 1979Q1 to 2010Q3, I find evidence of two-way causality between house price growth and household credit growth, but I find no evidence for the bank risk-taking channel: low key policy rates do not seem to have induced a higher share of troubled loans nor increased our measure of banks’ riskiness

The Risk-Taking Channel of Monetary Policy in Norway

We identify the effects of monetary policy on credit risk-taking using a unique dataset covering the population of corporate borrowers in Norway. We find that a lower benchmark interest rate (interbank rates or overnight rates) induces the average bank to grant more loans to risky firms. We also find that the strength of the bank's balance-sheet is important: less capitalized banks are more likely to increase loan volumes to ex-ante risky firms compared to more capitalized ones (Jimenez et al., 2014). The data allow us to distinguish the changes in the supply of credit from the changes in credit demand. In all our specifications we control for both observed and unobserved firm and bank heterogeneity by using financial statement information and firm, bank and time fixed effects.publishedVersio

Does information sharing reduce the role of collateral as a screening device?

Information sharing and collateral are both devices that help banks reduce the cost of adverse selection. We examine whether they are likely to be used as substitutes (information sharing reduces the need for collateral) or complements. We show that information sharing via a credit bureaus and registers may increase, rather than decrease, the role of collateral: it can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. Higher adverse selection makes the use of collateral more likely both with and without information sharing. Our results are in line with recent empirical evidence

Does Information Sharing Reduce the Role of Collateral as a Screening Device?

Information sharing and collateral reduce adverse selection costs, but are costly for lenders. When a bank learns more about the types of its rival's borrowers through information sharing (e.g., credit bureaus), it might seem that this information should substitute the role of collateral in screening their types. We instead show that information sharing may increase, rather than decrease, the role of collateral, which can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. We extend to show that ex ante screening can substitute both collateral and information sharing.publishedVersio

Information Sharing and Information Acquisition: Ownership and Coverage

We examine the conditions required for the existence of private credit bureaus, their ownership and coverage. Our model implies that bank consortia will most likely be preferred by banks, but that they will lead to restricted coverage. Independent credit bureaus have higher coverage, but they require good institutions. This implies an important role for public credit registers in developing countries with weak institutions. Our empirical findings largely support the implications of our model.publishedVersio

Information Sharing and Information Acquisition in Credit Markets

We examine the effect of information sharing via credit bureaus or credit registers on banks’ incentives to collect information about their borrowers. Information asymmetries have been identified as an important source of bank profits, and sharing knowledge about borrowers can reduce those rents. Despite that, we show that banks’ incentives to collect information actually increase in the presence of information sharing. The reason is that when hard, standardized information is shared, banks’ incentives to invest in soft, nonverifiable information increase. The result can be more accurate lending decisions and improved welfar

The Hidden Costs of Hidden Debt

We report evidence that salience may have economically significant effects on homeowners’ borrowing behavior, through a bias in favour of less salient but more costly loans. Survey evidence corroborates the existence of such a bias. We outline a simple model in which some consumers are biased and show that under plausible assumptions this affects prices in equilibrium. Market data support the predictions of the model.publishedVersio