Tests of Ex Ante Versus Ex Post Theories of Collateral Using Private and Public Information

Collateral is a widely used, but not well understood, debt contracting feature. Two broad strands of theoretical literature explain collateral as arising from the existence of either ex ante private information or ex post incentive problems between borrowers and lenders. However, the extant empirical literature has been unable to isolate each of these effects. This paper attempts to do so using a credit registry that is unique in that it allows the researcher to have access to some private information about borrower risk that is unobserved by the lender. The data also includes public information about borrower risk, loan contract terms, and ex post performance for both secured and unsecured loans. The results suggest that the ex post theories of collateral are empirically dominant, although the ex ante theories are also valid for customers with short borrower-lender relationships that are relatively unknown to the lender.Collateral;Asymmetric Information;Banks

The effect of the common bond and membership expansion on credit union risk

This paper examines differences in institutional risk profiles based on credit union membership type and membership expansion via “select employee groups,” or SEGs, which are now expressly allowed by the Credit Union Membership Access Act of 1998. A cross-sectional statistical model is specified that examines risk variation relative to the type of common bond and the breadth of the credit union’s membership. In findings that are consistent with earlier research, the authors document that occupationally based credit unions have a unique risk profile relative to other common bonds. This profile includes a greater exposure to concentration risk, which is hedged by holding greater proportions of capital. ; The authors also examine the subsample of Single-Bond occupational credit unions and those Multi-Bond credit unions with primarily occupational group members. They find that the presence of SEGs is negatively related to capital ratios and positively related to loan-to-share ratios relative to the Single-Bond occupational credit unions. The use of survey data documenting the number of SEGs confirms that, as more SEGs are added, credit unions tend to increase their loan-to-share ratios and decrease their capital ratios. However, the number of SEGs and the proportion of loan delinquencies are found to be positively related, suggesting that the informational advantages associated with the common bond become diluted as new groups are added. Overall, the authors conclude that there are material benefits of credit union membership diversification and that these benefits derive from expanded investment opportunities and reduced concentration risk.Credit unions ; Risk

Reexamining the Empirical Relation between Loan Risk and Collateral:The Role of the Economic Characteristics of Collateral

Abstract: This paper offers a possible explanation for the conflicting results in the literature concerning the empirical relation between collateral and loan risk. We posit that certain economic characteristics of collateral may be associated with the empirical dominance of different risk-collateral channels implied by economic theory, namely the “lender selection,” “borrower selection,” “risk-shifting,” and “loss mitigation” channels. Each of these four channels has different predictions regarding the empirical relations between collateral and loan risk. For our sample of commercial loans, we find that the “lender selection” channel appears to be especially important for outside collateral, the “risk-shifting” and “loss mitigation” channels are important for liquid collateral, and the “borrower selection” channel appears to hold weakly for nondivertible collateral. Our results suggest that the conflicting results in the extant riskcollateral literature may occur because different samples may be dominated by collateral with different economic characteristics

Reexamining the Empirical Relation between Loan Risk and Collateral:The Role of the Economic Characteristics of Collateral

Abstract: This paper offers a possible explanation for the conflicting results in the literature concerning the empirical relation between collateral and loan risk. We posit that certain economic characteristics of collateral may be associated with the empirical dominance of different risk-collateral channels implied by economic theory, namely the “lender selection,” “borrower selection,” “risk-shifting,” and “loss mitigation” channels. Each of these four channels has different predictions regarding the empirical relations between collateral and loan risk. For our sample of commercial loans, we find that the “lender selection” channel appears to be especially important for outside collateral, the “risk-shifting” and “loss mitigation” channels are important for liquid collateral, and the “borrower selection” channel appears to hold weakly for nondivertible collateral. Our results suggest that the conflicting results in the extant riskcollateral literature may occur because different samples may be dominated by collateral with different economic characteristics.

Reexamining the Empirical Relation between Loan Risk and Collateral:The Role of the Economic Characteristics of Collateral

Abstract: This paper offers a possible explanation for the conflicting results in the literature concerning the empirical relation between collateral and loan risk. We posit that certain economic characteristics of collateral may be associated with the empirical dominance of different risk-collateral channels implied by economic theory, namely the “lender selection,” “borrower selection,” “risk-shifting,” and “loss mitigation” channels. Each of these four channels has different predictions regarding the empirical relations between collateral and loan risk. For our sample of commercial loans, we find that the “lender selection” channel appears to be especially important for outside collateral, the “risk-shifting” and “loss mitigation” channels are important for liquid collateral, and the “borrower selection” channel appears to hold weakly for nondivertible collateral. Our results suggest that the conflicting results in the extant riskcollateral literature may occur because different samples may be dominated by collateral with different economic characteristics

The effect of the common bond and membership expansion on credit union risk

This paper examines differences in institutional risk profiles based on credit union membership type and membership expansion via "select employee groups," or SEGs, which are now expressly allowed by the Credit Union Membership Access Act of 1998. A cross-sectional statistical model is specified that examines risk variation relative to the type of common bond and the breadth of the credit union’s membership. In findings that are consistent with earlier research, the authors document that occupationally based credit unions have a unique risk profile relative to other common bonds. This profile includes a greater exposure to concentration risk, which is hedged by holding greater proportions of capital. ; The authors also examine the subsample of Single-Bond occupational credit unions and those Multi-Bond credit unions with primarily occupational group members. They find that the presence of SEGs is negatively related to capital ratios and positively related to loan-to-share ratios relative to the Single-Bond occupational credit unions. The use of survey data documenting the number of SEGs confirms that, as more SEGs are added, credit unions tend to increase their loan-to-share ratios and decrease their capital ratios. However, the number of SEGs and the proportion of loan delinquencies are found to be positively related, suggesting that the informational advantages associated with the common bond become diluted as new groups are added. Overall, the authors conclude that there are material benefits of credit union membership diversification and that these benefits derive from expanded investment opportunities and reduced concentration risk

Occult Cushing\u27s Syndrome Presenting with Osteoporosis

Osteoporosis is a frequent complication both of endogenous hypercortisolism and of long-term treatment with corticosteroids, but only rarely is it the major clinical feature with the more characteristic features absent or minimally present. In the two patients presented, hypercortisolism was uncovered only during routine evaluation of osteoporosis. This presentation is probably due to slow progression of the disease and is often associated with so-called black adenoma of the adrenal gland. Secondary causes should be sought in all patients with seemingly senile or postmenopausal osteoporosis