Premium
LENDING COMPETITION AND LOAN SALES: A MACROECONOMIC ANALYSIS UNDER DIRECTED SEARCH
Author(s) -
Huang Kevin X. D.,
Li Zhe,
Sun Jianfei
Publication year - 2021
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12963
Subject(s) - loan , competition (biology) , balance sheet , economics , balance (ability) , financial crisis , non conforming loan , interest rate , cross collateralization , participation loan , monetary economics , finance , financial system , business , non performing loan , macroeconomics , medicine , ecology , physical medicine and rehabilitation , biology
We present a macroeconomic analysis of loan sales driven by bank competition in lending and entrepreneur directed search for funding opportunities. We show how these two features of our macrofinance model can interact to reduce interest rates on loans financed via on‐balance‐sheet activities, and how this can motivate loan sales as a strategy of financing via off‐balance‐sheet activities. The results shed some light on the shift over the years preceding the global financial crisis in the practice of U.S. and European banks, from the traditional “originate‐to‐hold” model of credit provision, toward the “originate‐to‐distribute” approach for credit extension. ( JEL E44, G21, G24) .