Loan Sales and Relationship Banking

  • Author(s): CHRISTINE A. PARLOUR, GUILLAUME PLANTIN
  • Published: May 09, 2008
  • Pages: 1291-1314
  • DOI: 10.1111/j.1540-6261.2008.01358.x

ABSTRACT

Firms raise money from banks and the bond market. Banks sell loans in a secondary market to recycle their funds or to trade on private information. Liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms' optimal financial structure. The endogenous degree of liquidity is not always socially optimal: There is excessive trade in highly rated names, and insufficient liquidity in riskier bonds. We provide testable implications for prices and quantities in primary and secondary loan markets, and bond markets. Further, we posit that risk‐based capital requirements may be socially desirable.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version