Bank Loan Pricing Research Articles

Regulations, lender identity and bank loan pricing

Earlier empirical studies indicate that contract costs associated with loan monitoring influence bank loan pricing and that all lenders may not be equally efficient monitors. We examine whether differential monitoring costs lead foreign banks to price loans to U.S. firms differently from their U.S. counterparts. In particular, we hypothesize that due to relatively lax regulations governing the operations of foreign banks in the U.S. prior to the passage of the FDIC Improvement Act (FDICIA) of 1991, such banks were required to invest less resources in loan monitoring and were thus less efficient, or more costly, monitors. If the regulations introduced through FDICIA were effective then these foreign banks would be forced to improve their monitoring functions which would, in turn, reduce the rates charged on foreign loans. We test these hypotheses regarding the influence of regulations and lender identity by examining the differential lending behavior of American and Japanese banks to U.S. companies, since Japanese banks comprise the major foreign banking presence in the U.S.

THE RATIONING PROCESS IN THE INTERNATIONAL LOAN

This study examines the pricing of international bank loans to LDCs as a group to ascertain if non‐price variables are dominant factors in granting these loans. Specifically, it attempts to test the hypothesis that banks, in extending Eurocredits to LDCs, have used credit rationing, rather than pricing, maturity or other variables, to respond to the perceived risks involved in such lending. Results of empirical tests for the period 1977–90 confirm that, in response to significantly higher perceived risks, lenders simply constrained the flow of credit to this group of countries.

A Comment on the Markup Theory of Bank Loan Rates

(1987). A Comment on the Markup Theory of Bank Loan Rates. Journal of Post Keynesian Economics: Vol. 9, No. 4, pp. 629-631.

The pricing of bonds and bank loans in international markets: An empirical analysis of developing countries' foreign borrowing

Most recent empirical studies on creditworthiness and country risk have dealt with the international bank loan market, and have ignored the bond market in their effort to analyze the process of determination of default risk premia. In this paper data on both bank loans to the LDCs and on bonds issued by LDCs are used to analyze empirically several aspects related to developing countries' foreign borrowing and country risk. The paper analyzes three basic problems. First, some of the more important implications of modern models of LDCs foreign borrowing are tested. In particular the supposed positive effect of the level of indebtedness on the risk premium is investigated. Second, the pricing of bonds and bank loans are explicitly compared, in order to test whether, as sometimes has been argued, these two markets are significantly different. And third, data on yields on LDC bonds in the secondary market are analyzed to investigate the extent to which the market anticipated the debt crisis, and how it reacted to it. The main results obtained can be summarized as follows: First, both the bank loans and bonds data confirm some of the more important implications of foreign borrowing models. Specifically, the positive effect of higher debt ratios on the risk premium is confirmed. Second, it is found that the pricing of bonds and bank loans has somewhat differed. And third, it is found that the market anticipated by only a few weeks — and only partially — the world debt crisis of 1982. Finally, some policy implications that emerge from these findings are discussed.

‘The pricing of bonds and bank loans in international markets: An empirical analysis of developing countries' foreign borrowing’ by Sebastian Edwards

‘The pricing of bonds and bank loans in international markets: An empirical analysis of developing countries' foreign borrowing’ by Sebastian Edwards

‘The pricing of bonds and bank loans in international markets: An empirical analysis of developing countries' foreign borrowing’ by Sebastian Edwards

‘The pricing of bonds and bank loans in international markets: An empirical analysis of developing countries' foreign borrowing’ by Sebastian Edwards