Showing papers on "Collateral published in 2017"
TL;DR: Caballero et al. as discussed by the authors define a safe asset as a simple debt instrument that is expected to preserve its value during adverse systemic events (for example, Caballero and Farhi 2017).
Abstract: Journal of Economic Perspectives—Volume 31, Number 3—Summer 2017—Pages 29–46 The Safe Assets Shortage Conundrum Ricardo J. Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas E conomic actors need stores of value. Households save for retirement, for a rainy day, or to transmit wealth to their offspring. Corporations need to hold cash. Financial institutions need collateral. Central banks and sover- eign wealth funds need to hold foreign assets. These stores of value come in many forms: cash, bank deposits, US government Treasury bills, and also corporate bonds, stocks, repurchase agreements, derivatives, or real assets such as real estate, land, gold, and others. All stores of value are not created equal. They differ in their degree of liquidity—the ease with which they can be traded—and in their sensitivity to various risk factors. Among the menu of available assets, some are perceived as “safer” than others. Yet safety is an elusive concept, because nothing is ever absolutely safe. Inves- tors will always view the safety of an asset through the prism of their own perceptions, needs, and concerns, in relation to other assets, and in relation to the perceptions of other investors. This paper adopts a pragmatic and narrow definition: a safe asset is a simple debt instrument that is expected to preserve its value during adverse systemic events (for example, Caballero and Farhi 2017). This operational definition captures the ■ Ricardo J. Caballero is Ford International Professor of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts. Emmanuel Farhi is Professor of Economics, Harvard University, Cambridge, Massachusetts. Pierre-Olivier Gourinchas is the S.K. and Angela Chan Professor of Economics, University of California, Berkeley, California. All three authors are Research Associates, National Bureau of Economic Research, Cambridge, Massachusetts. Their email addresses are caball@mit.edu, efarhi@fas.harvard.edu, and pog@berkeley.edu. For supplementary materials such as appendices, datasets, and author disclosure statements, see the article page at https://doi.org/10.1257/jep.31.3.29 doi=10.1257/jep.31.3.29
239 citations
TL;DR: In this paper, the authors identify preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers between borrowers and borrowers.
Abstract: We present evidence that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. Our results imply that cultural proximity mitigates informational problems that adversely affect lending, which in turn relaxes financial constraints and improves access to finance.
171 citations
TL;DR: In this paper, the authors show that collateral constraints restrict firm entry and post-entry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values.
Abstract: We show that collateral constraints restrict firm entry and post-entry growth, using French administrative data and cross-sectional variation in local house-price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters, and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.
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163 citations
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TL;DR: This paper used transaction-level data on bank credit to estimate the causal impact of capital inflows on lending and found that most of the capital flows are intermediated by domestic banks, where bank heterogeneity is critical for the aggregate impact.
Abstract: Most capital inflows are intermediated by domestic banks. We use transaction-level data on bank credit to estimate the causal impact of capital inflows on lending. The key mechanism is a failure of UIP, where capital inflows due to increases in global risk-appetite lead domestic banks to lower borrowing rates. Our estimates explain 43% of observed credit growth, where bank heterogeneity is critical for the aggregate impact. Foreign banks, exchange-rate driven balance-sheet shocks, and the relaxation of firm-level collateral constraints cannot account for our large estimates. Textbook-models, where UIP holds and capital flows are endogenous to demand cannot explain our findings.
116 citations
TL;DR: In this article, the authors examine when banks use financial statements to monitor borrowers after loan origination and find that banks request financial statements for half the loans and this variation is related to borrower credit risk, relationship length, collateral, and the provision of business tax returns.
Abstract: Using a data set that records banks’ ongoing requests of information from small commercial borrowers, we examine when banks use financial statements to monitor borrowers after loan origination. We find that banks request financial statements for half the loans and this variation is related to borrower credit risk, relationship length, collateral, and the provision of business tax returns, but in complex ways. The relation between borrower risk and financial statement requests has an inverted U-shape; and tax returns can be both substitutes and complements to financial statements, conditional on borrower characteristics and the degree of bank–borrower information asymmetry. Frequent financial reporting is used to monitor collateral, but only for non–real estate loans and only when the collateral is easily accessible to lenders. Collectively, our results provide novel evidence of a fundamental information demand for financial reporting in monitoring small commercial borrowers and a specific channel through which banks fulfill their role as delegated monitors.
102 citations
TL;DR: The impact of criminal justice involvement on parents of court-ordered removal of their children is discussed in this paper, where the full gamut of challenges these parents face is poorly understood and post-removal support is lacking.
Abstract: This article aims to capture the full range of consequences that birth parents face, following court-ordered removal of their children on account of child protection concerns. With references to legislative and policy responses in England, the USA, and Australia, we argue that states reinforce parents’ exclusion, where the full gamut of challenges these parents face is poorly understood. Drawing on a wealth of criminological research concerned with the collateral consequences of criminal justice involvement we adapt conceptual ideas and vocabularies to describe the combination of informal and formal penalties that parents face at this juncture. Discussion extends previous published studies concerned with loss and social stigma following child removal but charts new theoretical ground regarding legal stigmatization and welfare disqualifications. The article is timely given the continued high volume of children entering state care in a number of international jurisdictions and recent empirical evidence from England that a sizeable population of birth parents who appear as respondents in the family court are repeat clients. Making the case for a fundamental re-appraisal of state responses following court-ordered removal, the article concludes with a call for a more comprehensive family justice response, attuned to the additive burden of child removal on parents whose lives are already blighted by histories of disadvantage. I . I N T R O D U C T I O N The impact on parents of court ordered removal of their children on account of child protection concerns is insufficiently theorized, despite the fact that a significant number of parents in a range of international contexts lose their children to the state in this way. For two reasons, there is now some urgency to tackle this omission. Firstly, an increasing number of very young children have entered state care during the past 5 years in a range of international jurisdictions (e.g. England, Australia, and the USA). Secondly, recent research in England has exposed the scale of birth mothers’ repeat involvement in the family court, which is no doubt paralleled in nation states with similar child protection systems (Broadhurst et al, 2015a). These observations prompt searching questions about how parents might be helped to salvage VC The Author 2017. Published by Oxford University Press. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited. 41 International Journal of Law, Policy and The Family, 2017, 31, 41–59 doi: 10.1093/lawfam/ebw013 Article D ow naded rom http/academ ic.p.com law am /article/41/3065577 by gest on 15 D ecem er 2020 productive lives following child removal and the potential contribution of therapeutic or legislative remedies. Searching the literature for relevant theoretical insights finds an important body of work on grief responses to the loss of children to state care or adoption. However, the majority of studies have focused on child relinquishment, rather than court ordered removal (Deykin, et al, 1984; Askren and Bloom, 1999; Doka, 1989, 1999; Aloi, 2009; Brodzinsky and Livingston-Smith, 2014). Although this work is relevant, the involuntary loss of a child through adversarial court proceedings is a very different experience, because parents are left with an indelible legal record that is highly consequential. In this article we provide a preliminary framework that captures the broad range of informal and formal consequences that follow for this particular group of parents. In addition to mourning the loss of their children, parents can experience social and legal stigmatization, sanctions on kin relationships and reduced welfare entitlements. With references to legislative and policy responses in England, the USA, and Australia, we argue that states (inadvertently) reinforce parents’ exclusion, where the full gamut of challenges parents face is poorly understood and postremoval support is lacking. Thus, we add to an important, but limited body of work concerned with parents’ life chances beyond family court intervention (Raskin, 1992; Carolan et al, 2010; Schofield et al, 2011; Neil, 2013). To aid our analysis, we turn to literature in the field of criminal justice that describes the collateral consequences of criminal justice involvement. In stark contrast to policy and research neglect of parents following child removal, this literature offers a wealth of theoretical and empirical work concerned with comprehensive support for offender rehabilitation (Logan, 2013; Love, 2015). Although there is some risk in drawing comparisons between parents within family proceedings and offenders within the criminal justice system, theoretical propositions provide a useful starting point for our project. By adapting vocabularies and conceptual ideas from this field, we find a way to capture the broader range of consequences that may help explain parents’ repeat appearances before the family court and generate fresh thinking about parent rehabilitation. This article is divided into a number of sections. Given the dearth of published work on policy and practice responses to parents following child removal, the first section provides readers with an extended background. We outline the reasons why parents are neglected at this juncture and in addition, make the case for a fundamental re-appraisal of state responses to parents beyond family justice involvement. We then turn to the criminological literature and consider what might be learned from an extensive international scholarship concerned with the collateral consequences of criminal justice involvement. Finally, we describe the range of both informal and formal consequences of court-ordered child removal, introducing a multi-dimensional framework that encapsulates the challenges faced by this population of parents, beyond the loss of their children. I I . B A C K G R O U N D 1. Birth parents beyond child removal: policy and legislative responses Where family courts deem that a child requires permanent placement in out-ofhome care or with adoptive parents, birth families typically disappear from the gaze 42 Karen Broadhurst and Claire Mason D ow naded rom http/academ ic.p.com law am /article/41/3065577 by gest on 15 D ecem er 2020 of services or find it very difficult to access support for their own rehabilitation. In the US and England, policy has moved in the direction of removing children more quickly from birth parents, with successive legislative developments giving greater emphasis to finding new families for young children (Gilmore and Bainham, 2015). In the US, the Federal law of the Adoption and Safe Families Act 1997 has been described as marking a shift away from family preservation towards an emphasis on the health, safety, and permanency needs of children (Whitt-Woosley and Sprang, 2014). This legislation directs child protection agencies and the courts to expedite the termination of parents’ rights, where parents are not able to show change within prescribed shorter timeframes. In England, we have witnessed similar legislative developments, with cross-party support for adoption as the preferred permanency option for infants and young children (Department for Education, 2013, 2016). Successive reforms to primary and secondary adoption legislation, now consolidated through the Children and Families Act 2014, emphasize earlier removal and placement with adoptive parents, where children cannot remain in the care of their birth families or extended family networks. In Australia, the most recent amendment to the Children and Young Person’s Care and Protection Act has also introduced a 6 months timescale for permanency decisions that concern infants (Fernandez, 2014). While it is entirely reasonable for states to encourage timely permanency plans for children, it is, arguably, unreasonable for parents’ own rehabilitation to be cut short because services reduce their involvement with parents following court proceedings. Although final evidence submitted at the close of care proceedings typically includes recommendations regarding parents’ treatment needs (e.g. for mental health or substance misuse problems), statutory frameworks in the US, England, and Australia, do not require the courts or children’s services to ensure these needs are met. In England, the Adoption and Children Act 2002 requires agencies to provide support to birth parents, but this typically takes the form of support for letter-box contact and brief counselling. In Australia, fewer children are adopted from care, and federal law and policy place a greater emphasis on family restoration. However, critics have argued that in the case of non-relative adoptions, post-adoption support services are limited and this is in spite of provisions set in place following Australia’s public apology to families on account of a difficult history of ‘forced’ adoption (Kenny et al, 2012). Where children remain in long-term foster care or with kin, the focus of professional services is again on reviewing the child and supporting his or her permanency placement. Birth parents will be kept informed of a child’s progress, but services will be reduced once reunification is ruled out. This is because child protection services are primarily focused on children and only tangentially concerned with the needs of parents (Kernan and Lansford, 2004; Wells and Marcenko, 2011; Gilbert et al, 2011). In Australia, the neglect of birth parents where children are in foster care has been subject to significant critique (Kapp and Propp, 2002; Kapp and Vela, 2004). Of course, lack of access to a continued programme of rehabilitation following care proceedings is particularly perilous for parents who return to the family court. For many of these parents,
95 citations
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TL;DR: This article investigated the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach, finding that there is a clear and robust effect on borrowing, but the responsiveness is smaller than recent US estimates.
Abstract: We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral.
77 citations
TL;DR: In this article, the authors used a unique set of household-level data from the Indian state of Punjab to assess the performance and financing of dairy value chains at their upstream and found that more than half of the dairy farmers finance their dairying activities borrowing from the formal as well as informal sources.
75 citations
TL;DR: In this article, the authors explore the implications of regional heterogeneity within a currency union for monetary policy and find that if regions with low relative income also have depressed collateral values, then expansionary monetary policy will further exacerbate regional dispersion of economic activity and will also be less effective at stimulating aggregate spending.
Abstract: We study the implications of regional heterogeneity within a currency union for monetary policy. We ask, first, does monetary policy mitigate or exacerbate ex-post regional dispersion over the business cycle? And second, does ex-ante regional heterogeneity increase or dampen the aggregate effects of a given monetary policy? To help answer these questions, we use detailed U.S. micro data to explore the extent to which mortgage activity differed across local areas in response to the first round of Quantitative Easing (QE1), announced in November 2008. We document that QE1 increased both mortgage activity and real spending but that its effects were smaller in parts of the country with the largest employment declines. This heterogeneous regional effect is driven by the fact that collateral values were most depressed in the regions with the largest employment declines, reducing the extent to which borrowers were able to benefit from rate decreases. We explore the implications of our empirical results for theoretical monetary policymaking using an incomplete-markets, heterogeneous-agent model of a monetary union whereby monetary policy influences local spending through collateralized lending. Preliminary results suggest that both the distributional and aggregate consequences of monetary policy depend on the joint distribution of local shocks. We find that if regions with low relative income also have depressed collateral values (as in 2008), then expansionary monetary policy will further exacerbate regional dispersion of economic activity and will also be less effective at stimulating aggregate spending.
73 citations
TL;DR: In this paper, the authors show that under commitment the optimal financial regulator's plans are time inconsistent and study time-consistent policy, which reduces the frequency and magnitude of crises, removes fat tails from the distribution of asset returns, and increases social welfare.
Abstract: Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions made in “good times” affect collateral prices during a crisis. We show that under commitment the optimal financial regulator’s plans are time inconsistent and study time-consistent policy. Quantitatively, this policy reduces sharply the frequency and magnitude of crises, removes fat tails from the distribution of asset returns, and increases social welfare. In contrast, constant debt taxes are ineffective and can be welfare reducing, while an optimized “macroprudential Taylor rule” is effective but less so than the optimal time-consistent policy.
70 citations
TL;DR: The authors demonstrate the central importance of creditors' ability to use movable assets as collateral when borrowing from banks and demonstrate that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production and investment.
TL;DR: In this paper, the authors performed descriptive statistics and probit regression model to examine the farmers' access to credit: does collateral matter or cash flow matter?-evidence from Sindh province of Pakistan.
Abstract: Credit is highly demanded in different parts of the world, mainly for capital requirement to improve land, purchase of main agricultural inputs including fertilizers, seeds, pesticides, and purchase of farm machinery. The purpose of this study was to examine the farmers’ access to credit: does collateral matter or cash flow matter?—evidence from Sindh province of Pakistan. The random sampling technique was used to collected data from 300 rural households through a face-to-face interview. To find the important factors affecting access to credit in Sindh province of Pakistan, we performed descriptive statistics and probit regression model. The results of probit regression model showed that gender, household size, educational level, farming experience, farm size, income, and availability of collateral have positive effect on farmers’ access to credit, while age has a negative and statistically insignificant effect on the farmers’ access to credit. Therefore, this study recommended that institutional ...
TL;DR: This paper found that the European Central Bank's 3-year Long-Term Refinancing Operation caused Portuguese banks to purchase short-term domestic government bonds, equivalent to 10.6% of amounts outstanding, and pledge them to obtain central bank liquidity.
TL;DR: In this article, the response of informed market participants to the informational signal of auditor changes was examined using propensity score matching and difference-in-differences research designs, showing that loan spreads increase by 22 percent on bank loans initiated within a year after auditor changes.
Abstract: We examine the response of informed market participants to the informational signal of auditor changes. Using propensity score matching and difference-in-differences research designs, we document that loan spreads increase by 22 percent on bank loans initiated within a year after auditor changes, increasing direct loan costs by approximately $6.6 million. We also find a significant increase in upfront and annual fees and the probability of pledging collateral, consistent with an increase in screening and monitoring by banks. The increase in spreads is significant for client-initiated auditor changes, with or without disagreements with the auditor, as well as for auditor resignations. Further, the significant increase in loan spreads is documented for upward, lateral, and downward auditor changes. Our results are robust to other proxies for financial reporting quality. Finally, we find no effect resulting from the forced auditor changes due to Arthur Andersen. Collectively, these results suggest ...
TL;DR: In this article, the authors exploit the variation in how the ECB's 2011-12 Long-Term Refinancing Operations (LTROs) affected lending to firms discontinuously across credit ratings within banks.
Abstract: How do banks transmit long-term central bank liquidity injections to borrowers? We exploit unique variation in how the ECB’s 2011-12 Long-Term Refinancing Operations (LTROs) affected lending to firms discontinuously across credit ratings (within banks) to make four contributions (i) We show the LTROs induced increased bank lending to firms in France, including to SMEs, an elusive policy objective (ii) We uncover important heterogeneity: banks pass through LTRO liquidity very differently to multi- bank firms than they do to firms with only one bank (iii) Differences in liquidity transmission map to archetypal lending types: single-bank firms receive relationship lending, and these firms invest and grow in response, while multi-bank firms receive transactions-style lending and do not increase their investment (iv) While the majority of the effect flows to firms whose loans are policy-eligible, we identify a spillover (onto multi-bank firms only) that appears to be driven by bank competition for borrowers
TL;DR: This paper examined the determinants of collateral for small and medium enterprises (SMEs) in the context of Visegrad countries: Czech Republic, Slovak Republic, Hungary and Poland.
Abstract: The purpose of this paper is to examine the determinants of collateral for small and medium enterprises (SMEs) in the context of Visegrad countries: Czech Republic, Slovak Republic, Hungary and Poland. The data set for this paper was obtained from the Business Environment and Enterprise Performance Survey (BEEPS), which was conducted by the World Bank and the European Bank for Reconstruction and Development (EBRD) from 2012–2014. A binary logistic regression model with different specifications was employed to examine the effect of independent variables on the incidence of collateral. The results show that risky borrowers need to pledge collateral and the reduction of asymmetric information can lower the incidence of collateral for SMEs. Moreover, we find that female borrowers are more likely to pledge collateral than male borrowers are. The results also suggest that loans with a longer maturity are more likely to be collateralized than short-term loans. We find evidence that bank-borrower proximit...
TL;DR: In this paper, the authors explore differences in foreign and domestic banks' credit contract terms and pricing models and show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks, while domestic banks price according to the length, depth and breadth of their relationship with a firm.
Abstract: Can distance-related information asymmetries in credit markets be overcome with contract design and credit scoring models? To answer this question, we explore differences in foreign and domestic banks’ credit contract terms and pricing models. Using a sample of firms that borrow from both domestic and foreign banks in the same month, we show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks. Foreign banks also base their pricing on internal credit ratings and collateral pledges, while domestic banks price according to the length, depth and breadth of their relationship with a firm. These findings confirm that foreign banks can overcome informational disadvantages using contract design and credit scoring models. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools.
TL;DR: In this paper, the authors show that an exogenous enhancement in the value of borrowers' patents, either through greater patent protection or creditor rights over collateral, results in cheaper loans, and they suggest that the property rights that patents confer to intellectual property and to lenders' judicious exercise of control rights allow bank loans to be a viable means of financing for innovative firms.
Abstract: Is bank financing compatible with innovation? We show that an exogenous enhancement in the value of borrowers’ patents, either through greater patent protection or creditor rights over collateral, results in cheaper loans. Using regression discontinuity design, we show that although R&D investment sharply drops following a financial covenant violation, the reduction is concentrated in firms with less productive R&D. Consequently, R&D reduction does not impair innovative output. Our results suggest that the property rights that patents confer to intellectual property and to lenders’ judicious exercise of control rights allow bank loans to be a viable means of financing for innovative firms.
TL;DR: In this paper, the authors explore whether transparency in banks' securitization activities enhances loan quality and find that securitized loans originated under the transparency regime are of better quality with a lower default probability, a lower delinquent amount, fewer days in delinquency and lower losses upon default.
Abstract: We explore whether transparency in banks’ securitization activities enhances loan quality. We take advantage of a novel disclosure initiative introduced by the European Central Bank, which requires, as of January 2013, banks that use their asset-backed securities as collateral for repo financing to report securitized loan characteristics and performance in a standardized format. We find that securitized loans originated under the transparency regime are of better quality with a lower default probability, a lower delinquent amount, fewer days in delinquency and lower losses upon default. Additionally, banks with more intensive loan level information collection and those operating under stronger market discipline experience greater improvement in their loan quality under the new reporting standards. Overall, we demonstrate that greater transparency has real effects by incentivizing banks to improve their credit practices.
TL;DR: This article developed a macroeconomic model in which commercial banks can o oad risky loans to a highly levered "shadow" banking sector, and financial intermediaries trade in securitized assets.
Abstract: We develop a macroeconomic model in which in which commercial banks can o oad risky loans to a highly levered ‘shadow’ banking sector, and financial intermediaries trade in securitized assets. We highlight the liquidity creation role played by securitization. We show how an endogenous tightening of credit constraints can exacerbate the e ect of shocks by limiting the ability of shadow banks to supply collateral, and of banks to securitize. The model is able to reproduce the cyclical behavior of bank and non-bank credit and leverage. Macroeconomic shocks that directly impact the worth of financial sector are particularly harmful to economic activity, but purely redistributive intra-financial shocks can also generate recessions. We discuss how government policy can stabilize the securitization market when the shadow banking system becomes impaired.
TL;DR: In this paper, the setup and operations of the Warehouse Receipt System (WRS) in Ghana were evaluated for the extent to which the WRS was meeting crop farmers' expectations and the Warehouse receipt system's own objectives.
Abstract: Purpose
The purpose of this paper is to document and appraise two innovations by which nontraditional forms of collateral are being used to make smallholder crop and livestock farmers bankable in Ghana and Zimbabwe.
Design/methodology/approach
The setup and operations of the warehouse receipt system (WRS) in Ghana were evaluated for the extent to which the WRS was meeting crop farmers’ expectations and the WRS’s own objectives. Owners of the WRS, a certified warehouse operator in a big city, and two operators of certified community warehouses in farming communities were interviewed. Two focus group discussions with crop farmers were also held. Information about the setup and operations of the Tawanda Nyambirai Livestock Trust (TNLT) Private Limited in Zimbabwe (TNLT) and extent of serving the credit needs of livestock farmers was obtained by telephone from the managing director. Data were gathered in April 2014 and were analyzed later.
Findings
Due to low output no smallholder farmer targeted by the WRS had been issued with a tradable certified warehouse receipts to serve as collateral to potential lenders. Grain aggregators (non-farmers) have aggregated enough grains from farmers to be issued warehouse receipts. Grain farmers report substantial reduction in post-harvest losses when they lodge farm proceeds with certified community warehouses. For the TNLT, more than 140 farmers had deposited 700 cattle and had been issued with tradable certificates of deposit within one year of TNLT to obtain revolving credit from one bank. Other benefits and challenges are highlighted.
Originality/value
Both approaches have potential of helping to solve liquidity constraints of farmers.
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TL;DR: In this article, the authors show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment, and that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders.
Abstract: We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset and generates a “collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders
TL;DR: Based on the distribution patterns of rural credit cooperatives in about 2200 counties in 2009, the authors examines two aspects of financial exclusion in rural China after the restructuring of the banking industry, showing that despite the state's efforts to ensure financial inclusion in rural areas, poor farmers could be spatially included while still being denied loans due to their inability to provide collateral, and the lack of formal credit records.
Abstract: Rural banking in China: geographically accessible but still financially excluded? Regional Studies. Based on the distribution patterns of rural credit cooperatives in about 2200 counties in 2009, this paper examines two aspects of financial exclusion in rural China after the restructuring of the banking industry. Despite the state's efforts to ensure financial inclusion in rural areas, poor farmers could be spatially included while still being denied loans due to their inability to provide collateral, and the lack of formal credit records. The mismatch between the supply and demand of credit has led to informal loans substituting for formal loans and thus contributed to the proliferation of informal banking in China.
TL;DR: This article found that optimistic entrepreneurs tend to use more short-term debt, and that banks are more likely to approve loan applications by optimistic entrepreneurs, they do not charge an interest premium, and do not require more collateral.
Abstract: Does entrepreneurial optimism affect the financing decisions? Do financiers have better knowledge of entrepreneurs’ unrealistic optimism and curtail lending to them? Using a large sample of U.S. small businesses and a new measure of optimism, we find that more optimistic entrepreneurs tend to use more short-term debt. We do not find evidence that banks curtail lending to more optimistic entrepreneurs. In fact, banks are more likely to approve loan applications by optimistic entrepreneurs, they do not charge an interest premium, and do not require more collateral. Our results are robust to alternative measures of optimism, alternative samples, and controls for private information.
TL;DR: In this article, the authors discuss unconventional policies in an open economy where financial intermediaries face occasionally binding collateral constraints, and highlight interactions among the real exchange rate, interest rates, and financial frictions.
TL;DR: In this article, the authors extend empirical evidence on the determinants of the incidence and the levels of business and personal collateral, reporting first-hand results regarding the impact of the recently reformed credit environment on collateral requirements.
TL;DR: This paper explored the role of bank connections as an important informal institution in debt contracting and found that bank connections, established through personal networks, asymmetrically affect the speed of leverage adjustment.
Abstract: This study explores the role of bank connections as an important informal institution in debt contracting. Drawing on a sample of Chinese listed firms from 2004 to 2012, we find that bank connections, established through personal networks, asymmetrically affect the speed of leverage adjustment. Bank connections can reduce the marginal costs of leverage adjustment for under‐levered firms. We further find that such connections are especially important for firms with low levels of collateral and young firms, in areas with relatively underdeveloped financial markets, during periods of tight monetary policy, and when there is little competition in the banking industry.
TL;DR: This article found that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms' precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.
Abstract: Better access to debt markets mitigates the effects of uncertainty on corporate policies. We establish this result using the staggered introduction of anti-recharacterization laws in U.S. states. These laws enhanced firms’ ability to borrow by strengthening creditors’ rights to repossess collateral pledged in SPVs. After the passage of the laws, firms that face more uncertainty hoard less cash and increase payouts, leverage, and investment in intangible assets. Our findings suggest that better access to debt markets shields firms from fluctuations in uncertainty and decreases firms’ precautionary behavior, contributing to the deployment of cash and other internal resources to investment in intangible capital.
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TL;DR: In this article, the authors show that house price increases and exchange rates can contribute to fueling the boom by inflating the value of collateral, and empirically, in a Panel VAR model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012, that an increase in the leverage of US broker-dealers also leads to an increase of cross-border credit flows, a house price and consumption boom, a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model.
Abstract: House prices and exchange rates can potentially amplify the expansionary effect of capital inflows by inflating the value of collateral. We first set up a model of collateralized borrowing in domestic and foreign currency with international financial intermediation in which a change in leverage of global intermediaries leads to an international credit supply increase. In this environment, we illustrate how house price increases and exchange rates appreciations contribute to fueling the boom by inflating the value of collateral. We then document empirically, in a Panel VAR model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012, that an increase in the leverage of US Broker-Dealers also leads to an increase in cross-border credit flows, a house price and consumption boom, a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model. Finally, we study the sensitivity of the consumption and asset price response to such a shock and show that country differences are associated with the level of the maximum loan-to-value ratio and the share of foreign currency denominated credit.
TL;DR: In this article, the determinants of access to finance for small and medium enterprises (SMEs) in the context of three Central European countries: Czech Republic, Slovak Republic, and Hungary were explored.
Abstract: This paper explores the determinants of access to finance for small and medium enterprises (SMEs) in the context of three Central European countries: Czech Republic, Slovak Republic, and Hungary. The data set of the research is obtained from the BEEPS survey, which is conducted by the World Bank and the European Bank for Reconstruction and Development. This paper empirically analyses firms not only from the SMEs point of view, but also shows results for micro, small and medium enterprises separately. Additionally, we have analysed the determinants of access to finance for SMEs at each country level for an in-depth understanding of country-level variations in SME financing. The results indicate that micro firms and firms owned and operated by women are experiencing a shortage of credits from banks. On the other hand, we found a positive relationship between the pledge of collateral and access to finance. With respect to the medium firms, we found evidence that innovative firms have a larger amount of credit from banks. The empirical results also suggest that the loan size increases as the interest rates increase in particular for SMEs on the whole and for micro-firms, although the interest rate is in a negative relationship with the loan size in Czech Republic.