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"Keeping it personal" or "getting real"? On the drivers and effectiveness of personal versus real loan guarantees

Author

Listed:
  • Sergio Mayordomo

    (Banco de España)

  • Antonio Moreno

    (University of Navarra)

  • Steven Ongena

    (University of Zurich, Swiss Finance Institute, KU Leuven, and CEPR)

  • María Rodríguez-Moreno

    (Banco de España)

Abstract

Little is known about the drivers and effectiveness of personal as opposed to real loan guarantees provided by firms. This paper studies a dataset of 477,209 loan contracts granted over the 2006-2014 period by one Spanish financial institution consisting of several distinguishable organisational units. While personal guarantees are mostly driven by the economic environment as reflected in firm and bank conditions, real guarantees are mostly explained by loan characteristics. In response to higher capital requirements imposed by the European authorities in 2011, personal guarantee requirements increased significantly more than their real counterparts. Our results imply that personal guarantees can discipline firms in their risk-taking, but their overuse can limit this positive effect and damage their performance.

Suggested Citation

  • Sergio Mayordomo & Antonio Moreno & Steven Ongena & María Rodríguez-Moreno, 2017. ""Keeping it personal" or "getting real"? On the drivers and effectiveness of personal versus real loan guarantees," Working Papers 1715, Banco de España.
    • Handle: RePEc:bde:wpaper:1715
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/17/Fich/dt1715e.pdf
    File Function: First version, May 2017
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Degryse, Hans & Karapetyan, Artashes & Karmakar, Sudipto, 2021. "To ask or not to ask? Bank capital requirements and loan collateralization," Journal of Financial Economics, Elsevier, vol. 142(1), pages 239-260.
    2. Elisa Brodi, 2018. "Dealing with corporate crises in a timely way. Notes on the optimal design of an �Early warning and composition system�," Questioni di Economia e Finanza (Occasional Papers) 440, Bank of Italy, Economic Research and International Relations Area.
    3. Óscar Arce & Miguel García-Posada & Sergio Mayordomo & Steven Ongena, 2018. "Adapting lending policies in a “negative-for-long” scenario (Updated October 2020)," Working Papers 1832, Banco de España, revised Oct 2020.
    4. Hans Degryse & Artashes Karapetyan & Sudipto Karmakar, 2018. "To Ask or Not To Ask? Collateral versus Screening in Lending Relationships," Working Papers REM 2018/49, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    More about this item

    Keywords

    banks; asymmetric information; real guarantees; personal guarantees; risk-taking; capital requirements;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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