Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86539
Authors: 
Slijkerman, Jan Frederik
Smant, David J.C.
de Vries, Casper G.
Year of Publication: 
2004
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-032/2
Abstract: 
Banks provide risky loans to firms which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore reduces the risk of the bank loan portfolio. However, CVaR regulation distorts the operation of credit markets. We show that a binding CVaR constraint introduces credit rationing and lowers social welfare. CVaR regulation also affects the operation of monetary policy.
Subjects: 
Credit rationing
Credit Value-at-Risk
asymmetric information
banks
regulation
loans
JEL: 
D45
D82
E43
G21
Document Type: 
Working Paper

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