Working Paper: CEPR ID: DP9084
Authors: Helmut Bester; Thomas Gehrig; Rune Stenbacka
Abstract: We analyze the effect of loan sales on the intensity of costly screening. Loan sales strengthen screening incentives when screening primarily improves the bank?s ability to identify profitable loans and when banks retain most of those profitable loans. However, loan sales dampen screening incentives when the benefit of screening primarily helps to weed out unprofitable projects. Moreover, alternative institutions of information production and the institutional market framework affect the relative benefits and costs of loan sales, and screening respectively. Accordingly, the potential regulation of loan sales has to take into account the whole impact on societal information production, both in markets and non-market institutions.
Keywords: loan sales; screening; securitization
JEL Codes: D83; G21; G32; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loan sales (G51) | screening incentives (M52) |
| screening improves identification of profitable loans (G21) | loan sales strengthen screening incentives (G51) |
| screening technology characteristics (L63) | loan sales effects on screening incentives (H81) |
| borrower pool characteristics (G51) | loan sales effects on screening incentives (H81) |
| mandatory retention requirements (G32) | screening incentives (M52) |
| high capital costs (G31) | loan sales strengthen screening incentives (G51) |