Fixed Or Variable Rate Choice In The Commercial Bank Business Loan Market

We study the choice available to business borrowers and lenders between fixed rate and variable rate bank loans. Unlike previous studies that examine residential mortgage loans, this analysis examines commercial and industrial loans. Business loans differ in attributes from mortgage loans and hence provide an opportunity to test determinants of the mortgage loan choice decision for other loan types. The diversity of business loans also permits tests of any effect which lender size and borrower size may have on the choice decision. Using a continuous index of preferences for the variable rate commercial loan, we find that the determinants of the business loan choice decision are different from the determinants of the mortgage loan choice decision. In contrast to prior research, we find strong evidence contradicting the proposition that variable rate loans are merely a response to high and variable interest rates. Further, this the first study to reveal size as a determinant of loan choice. Larger banks and larger borrowers have a greater preference for variable rate loans. Our results combined with the consolidation occurring among banks leads to the conclusion that the observed shift to variable rate bank loans is not transitory, and poses a significant risk for businesses with asset returns uncorrelated with short-term loan rates

The Significance of Porfolio Lenders to Real Estate Brokers

For the reasons observed in the sample of mortgage loans examined, the real estate brokerage industry will continue to depend heavily on portfolio lending to finance residential housing transactions. This paper examines a sample of residential mortgages to determine the breadth of lending by home type and customer credit qualification. The findings show that portfolio lending is required to satisfy homebuyers with heterogenous mortgage loan needs. Comparative analysis of credit decisions provides evidence of sound lending.

Financial institutions. : Markets and management.

New Yorkxxi, 521 p.; 21 cm

Loan Portfolio Composition And Management Control Of Bank Risk: An Empirical Investigation

The extent of managerial control over loan default risk is a significant policy issue for commercial banks and the public agencies which regulate them.  The responsibility of bank management and the rationale for government regulation and deposit insurance rest in large measure on the fundamental issue of whether loan loss variances (over time and across banks) ensue from managerial decisions or macroeconomic conditions.  Our time series models of large banks show systematic, bank dependent loss rates over time, the signs of the coefficients confirm a risk reinforcing rather than a risk adjusting management culture.  Our cross sectional regressions reveal significant relationships between individual and group (all sample bank) loan losses for commercial and c consumer types of loans, indicating that significant unpredictable macroeconomic forces exist.  Thus, we identify risks arising from macroeconomic conditions appropriate for government insurance and risks ensuing from managerial decisions appropriate free market discipline