Model Of Lending Research Articles

EBook Loans: an e‐twist on a classic interlending service

PurposeIn April 2007, the Canada Institute for Scientific and Technical Information (CISTI), in collaboration with Ingram MyiLibrary, launched the eBook Loan Service. The paper describes the management of challenges associated with the project as well as the background and context of the aims to eBook Loan Service model. Conclusions and future activities by the partners with regard to e‐book lending are discussed.Design/methodology/approachThe paper addresses two main topics: how the eBook Loan Service model was developed, the challenges and risks, the outcomes and benefits; and to evaluate whether a project stretching across boundaries of geography and time as well as between public and commercial partners can be managed successfully. Through a literature review, the context of the e‐book lending model for libraries is addressed, as well as the challenges of virtual project management.FindingsThe challenges and risks associated with implementing the new service were resolved and the project was a success.Originality/valueThe new service delivered by this project underlines the richness of new ideas emerging in the library community to improve access to scholarly literature in the digital age. With this model of affordable short‐term access to scholarly e‐books, libraries will be in a better position to serve the just‐in‐time needs of users in the electronic environment and end‐users will have better access.

Implementing breast cancer decision aids in community sites: barriers and resources.

To assess the feasibility of implementing four patient decision aids (PtDAs) for early stage breast cancer treatment decisions into routine clinical care in community settings. There is very limited information available about implementing decision aids into routine clinical practice and most of this information is based on academic centres; more information is needed about implementing them into routine clinical practice in community settings. Structured individual interviews. Providers from 12 sites, including nine community hospitals, a community oncology centre and two academic centres. Usage data, barriers to and resources for implementing the PtDAs. Nine of the 12 sites were using the PtDAs with patients. All of the sites were lending the PtDAs to patients, usually without a formal sign-out system. The keys to successful implementation included nurses' and social workers' interest in distributing the PtDAs and the success of the lending model. Barriers that limited or prevented sites from using the PtDA included a lack of physician support, a lack of an organized system for distributing the PtDAs and nurses' perceptions about patients' attitude towards participation in decision making. It is feasible to implement PtDAs for early stage breast cancer into routine clinical care in community settings, even with few resources available.

Bankruptcy laws and debt renegotiation

This paper analyzes the effect of the toughness of bankruptcy law on the number of liquidations in a simple model of borrowing and lending with asymmetric information, where the creditor cannot credibly commit to liquidate the firm if the default occurs. In our setting we consider a bankruptcy law to be a one-dimensional variable that influences creditor's expectation value of collateral. We find that there is an interval of the bankruptcy law, where the number of liquidations decreases in the toughness of the bankruptcy law. We also find that if the liquidation costs are high, softer bankruptcy law is preferred.

Equilibrium Default Cycles

This paper analyzes Markov equilibria in a model of strategic lending in which (i) agents cannot commit to long‐term contracts, (ii) contracts are incomplete, and (iii) incumbent lenders can coordinate their actions. Default cycles occur endogenously over time along every equilibrium path. After a sequence of bad shocks, the borrower in a competitive market accumulates debt so large that the incumbent lenders exercise monopoly power. Even though the incumbents could maintain this power forever, they find it profitable to let the borrower regain access to the competitive market after a sequence of good shocks. Equilibria are computed numerically, and their attributes are qualitatively consistent with numerous known empirical facts on sovereign lending. In addition, the model predicts that a borrower who accumulates debt overhang will regain access to the competitive credit market only after good shocks. This prediction is shown to be consistent with data on emerging market economies.

The Procyclical Effects of Basel II

We analyze the cyclical effects of moving from risk-insensitive (Basel I) to risk-sensitive (Basel II) capital requirements in the context of a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and, as a precaution, hold capital buffers. We find that the new regulation changes the behavior of these buffers from countercyclical to procyclical. Yet, the higher buffers maintained in expansions are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession. We show that cyclical adjustments in the confidence level behind Basel II can reduce its procyclical effects without compromising banks' long-run solvency.

Unconditional IMF Financial Support and Investor Moral Hazard

This paper develops a simple model of international lending, and calibrates it to assess quantitatively the effects of contingent IMF financial support on the risk premiums and the crisis probability. In the model, the country borrows in both short and long term; market (coordination) failure triggers a liquidity run and inefficient default; and the IMF lends unconditionally under a preferred creditor status. The model shows that IMF financial support can help prevent a liquidity crisis without causing investor moral hazard by helping to remove a distortion-effectively subsidizing ex post short-term investors (who run for the exit) at the expense of long-term investors (who are locked in). The resulting equilibrium is welfare enhancing as both the country's borrowing costs and the likelihood of a crisis are lower. The calibration exercises suggest that IMF-induced investor moral hazard-which occurs if the IMF lends at a subsidized rate-is unlikely to be a concern in practice, particularly if the country's economic fundamentals are strong and short-term debt is small.

Unconditional IMF Financial Support and Investor Moral Hazard

This paper develops a simple model of international lending, and calibrates it to assess quantitatively the effects of contingent IMF financial support on the risk premiums and the crisis probability. In the model, the country borrows in both short and long term; market (coordination) failure triggers a liquidity run and inefficient default; and the IMF lends unconditionally under a preferred creditor status. The model shows that IMF financial support can help prevent a liquidity crisis without causing investor moral hazard by helping to remove a distortion-effectively subsidizing ex post short-term investors (who run for the exit) at the expense of long-term investors (who are locked in). The resulting equilibrium is welfare enhancing as both the country's borrowing costs and the likelihood of a crisis are lower. The calibration exercises suggest that IMF-induced investor moral hazard-which occurs if the IMF lends at a subsidized rate-is unlikely to be a concern in practice, particularly if the country's economic fundamentals are strong and short-term debt is small.

The Procyclical Effects of Basel II

We analyze the cyclical effects of moving from risk-insensitive (Basel I) to risk-sensitive (Basel II) capital requirements in the context of a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and, as a precaution, hold capital buffers. We find that the new regulation changes the behavior of these buffers from countercyclical to procyclical. Yet, the higher buffers maintained in expansions are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession. We show that cyclical adjustments in the confidence level behind Basel II can reduce its procyclical effects without compromising banks' long-run solvency.

A dynamic model of individual and group lending in developing countries

This paper examines the contract design problem of microfinance institutions seeking to maximize outreach to the poor while remaining financially sustainable. A dynamic model of group lending is developed that shows how optimal interest rates depend on information regarding moral hazard and adverse selection problems, correlated project risks, and strategic default. Relative to traditional static models, the results indicate a dynamic model better explains the current experience with individual and group lending in developing countries.

The role of information externalities and scale economies in home mortgage lending decisions

Theories of rational redlining suggest a low volume of sales should lead to greater uncertainty in house price appraisals, making the mortgage loan less attractive to lenders. This paper represents the first test of this “information externality” theory using a well-specified model of lending. In our preferred model, information externalities are relevant but the marginal effect diminishes quickly, with only about 10 percent of applications materially disadvantaged by a low volume of sales. Our results also support the presence of bank-level economies of scale to reviewing applications in a given area, with increased bank-level applications associated with higher acceptance rates.

Debt contracts with ex-ante and ex-post asymmetric information: an example

We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less discriminating the optimal menu of contracts is.

Credit in the euro area: An empirical investigation using aggregate data

This paper uses multivariate cointegration techniques to estimate a model of aggregate bank lending in the euro area. The model provides a quantitative benchmark for assessing conjunctural developments in loans to the area-wide private sector. Large and protracted deviations of realised loans from the paths implied by the model may reveal information about the emergence of financial imbalances as well as about the state of the economy, particularly about the strength of inflationary pressures. A specific application of the model shows that its error-correction term contains information on future changes in inflation over forecast horizons of relevance for monetary policy.

Getting Shut Out of the International Capital Markets: It Doesn't Take Much

We use a simple model of international lending to show that an emerging market borrower who might default can be shut out of international capital markets without warning. A modest haircut on obligations, for example, can shut down lending.

Getting Shut Out of the International Capital Markets: It Doesn't Take Much

We use a simple model of international lending to show that an emerging market borrower who might default can be shut out of international capital markets without warning. A modest haircut on obligations, for example, can shut down lending.

Here today, gone tomorrow: Can dynamic incentives make microfinance more flexible?

This paper presents a model of microfinance lending to individuals that uses dynamic incentives, in the form of access to additional loans, to discourage borrowers from strategic default, or the unwillingness to repay a loan once a positive outcome is realized. We propose an improvement on contracts currently used by microfinance institutions (MFIs) by endogenizing the default penalty, while constraining the MFI to maintain sustainable lending operations. Furthermore, accounting for the risks that the poor face by including a negative economic shock, we show that under certain circumstances, the punishment for default need not be a lifetime without loans.

Project Contingent Repudiation Risk in the Model of North-South Lending

The present model proposes an extension of the Gertler and Rogoff (1990) model of international lending in the presence of moral hazard and the possibility of state-contingent and project-dependent repudiation risk along the lines of Lane (1999). By linking the level of repudiation risk to the size of the project, we show that investment projects arising in the marketplace will be constrained in the size of capital by the repudiation risk, even in case of the repudiation risk applying to the bad state of nature alone. This amplifies the results shown in Lane (1999) and can be interpreted as a debt ceiling within the context of international lending. The model provides a natural connection between the exogenous monitoring institutions development, the degree of corruption and bankruptcy/limited liability laws to the ability of entrepreneurs to raise investment funding.

The Mussa Theorem (and Other Results on IMF-Induced Moral Hazard)

Using a simple model of international lending, we show that as long as the IMF lends at an actuarially fair interest rate and debtor governments maximize the welfare of their taxpayers, any changes in policy effort, capital flows, or borrowing costs in response to IMF crisis lending are efficient. Thus, under these assumptions, the IMF cannot cause moral hazard, as argued by Michael Mussa (1999 and 2004). It follows that examining the effects of IMF lending on capital flows or borrowing costs is not a useful strategy to test for IMF-induced moral hazard. Instead, empirical research on moral hazard should focus on the assumptions of the Mussa theorem. Copyright 2005, International Monetary Fund

E‐books: are they the interlibrary lending model of the future?

This article assesses the likely impact of e‐books on interlibrary lending in the UK. It examines a range of factors that are likely to impact on the lending of e‐books to other libraries, for example, digital rights management systems designed to protect copyright and publishers' profits, and the limited take‐up of e‐book services in UK libraries. It analyses the reasons behind this poor take‐up including unsuitable pricing and delivery models and lack of appropriate content. The article also gauges current levels of demand for books requested via interlibrary loans, and questions whether books are different from documents in terms of copying and distribution, and what the likelihood is of e‐books being able to satisfy interlibrary loan requests. A new hybrid model of interlending, aimed at solving the problem of lending e‐books in academic libraries, is reviewed.

Optimal Lending Contracts and Firm Dynamics

We develop a general model of lending in the presence of endogenous borrowing constraints. Borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced. In the model, the dynamics of debt are closely linked with the dynamics of borrowing constraints. In fact, borrowing constraints must satisfy a dynamic consistency requirement: the value of outstanding debt restricts current access to short-term capital, but is itself determined by future access to credit. This dynamic consistency is not guaranteed in models of exogenous borrowing constraints, where the ability to raise short-term capital is limited by some prespecified function of debt. We characterize the optimal default-free contract—which minimizes borrowing constraints at all histories—and derive implications for firm growth, survival, leverage and debt maturity. The model is qualitatively consistent with stylized facts on the growth and survival of firms. Comparative statics with respect to technology and default constraints are derived. Borrowing constraints are an important determinant of firm growth and survival. 1 Such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs, such as those required to survive a recession. This paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics. In our model, debt is constrained by the firm’s limited liability and option to default. A lending contract specifies an initial loan size, future financing, and a repayment schedule. The choice of these variables in turn determines future growth, the firm’s future borrowing capacity, and its ability and willingness to repay. Hence, borrowing constraints and firm dynamics are jointly determined. We study this dynamic design problem. Our model builds on Thomas and Worral’s (1994) model of foreign direct investment. At time zero a risk neutral borrower (firm or entrepreneur) has a project which requires a fixed initial set-up cost. Every period the project yields revenues that increase with the amount of 1. There is considerable evidence suggesting that financing constraints are important determinants of firm dynamics. Gertler and Gilchrist (1994) argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms. Perez-Quiros and Timmermann (2000) show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia. Evans and Jovanovic (1989) show that the liquidity constraints are essential in the decision to become an entrepreneur. Fazzari, Hubbard and Petersen (1988), among others, view financial constraints as an explanation for the dynamic behaviour of aggregate investment, and Cabral and Mata (1996) are able to fit reasonably well the size distribution of Portuguese manufacturing firms by estimating a simple model of financing constraints. For surveys see Hubbard (1998) and Stein (2003).

Vertical Differentiation, Asymmetric Information and Endogenous Bank Screening

In a model of bank lending characterized by asymmetric information, we show that banks may use an interim monitoring technology strategically to soften price competition, even though the borrowers face no moral hazard problem. The interim monitoring technology can also be used to alleviate adverse selection. The equilibria that emerge resemble those in vertical product differentiation models. We also show that because of the strategic use of interim monitoring, a bank may forego the use of a costless and perfect ex-ante screening technology.