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Lending Competition And Loan Sales: A Macroeconomic Analysis Under Directed Search

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  • Kevin X. D. Huang
  • Zhe Li
  • Jianfei Sun

Abstract

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).

Suggested Citation

  • Kevin X. D. Huang & Zhe Li & Jianfei Sun, 2021. "Lending Competition And Loan Sales: A Macroeconomic Analysis Under Directed Search," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 648-661, April.
    • Handle: RePEc:bla:ecinqu:v:59:y:2021:i:2:p:648-661
    DOI: 10.1111/ecin.12963
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    1. Miguel Casares & Luca G. Deidda & Jose E. Galdon‐Sanchez, 2023. "On financial frictions and firm's market power," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 982-1005, October.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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