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Multi-bank loan pool contracts: enhancing the profitability of small commercial banks
| Content Provider | Semantic Scholar |
|---|---|
| Author | Gintschel, Andreas Hackethal, Andreas |
| Copyright Year | 2004 |
| Abstract | The study shows that multi-bank loan pool contracts improve the risk-return profile of banks' loan business. Banks write simple contracts on the proceeds from pooled loan portfolios, taking into account the free-rider problems in joint loan production. Thereby especially smaller banks benefit greatly from diversifying credit risk while limiting the efficiency loss due to adverse incentives. Calibration results are presented for a sample of German savings banks: the formation of loan pools reduces the volatility in default rates, proxying for credit risk, of loan portfolios by roughly 80%. Under reasonable assumptions, the gain in return on equity (in certainty equivalent terms) is around 200 basis points annually. |
| Starting Page | 1239 |
| Ending Page | 1252 |
| Page Count | 14 |
| File Format | PDF HTM / HTML |
| DOI | 10.1080/0960310042000281176 |
| Volume Number | 14 |
| Alternate Webpage(s) | https://www.wiwi.uni-frankfurt.de/profs/hackethal/loan_pools_62004_author%20name.pdf |
| Alternate Webpage(s) | https://doi.org/10.1080/0960310042000281176 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
