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Loan sales as a response to market-based capital constraints

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  • Charles T. Carlstrom
  • Katherine A. Samolyk

Abstract

A model of bank asset sales in which information asymmetries create the incentive for unregulated banks to originate and sell loans to other banks, rather than fund them with deposit liabilities. Private information implies that bankers can fund local loans only to the extent that their capital can absorb potential losses. Loan sales are effectively a means of employing nonlocal bank capital to support local investments.

Suggested Citation

  • Charles T. Carlstrom & Katherine A. Samolyk, 1993. "Loan sales as a response to market-based capital constraints," Working Papers (Old Series) 9313, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:9313
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    References listed on IDEAS

    as
    1. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
    2. Katherine A. Samolyk, 1989. "The role of banks in influencing regional flow of funds," Working Papers (Old Series) 8914, Federal Reserve Bank of Cleveland.
    3. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    4. Haubrich, Joseph G & Thomson, James B, 1996. "Loan Sales, Implicit Contracts, and Bank Structure," Review of Quantitative Finance and Accounting, Springer, vol. 7(2), pages 137-162, September.
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    9. Rebecca Demsetz, 1994. "Economic conditions, lending opportunities, and loan sales," Research Paper 9403, Federal Reserve Bank of New York.
    10. Carlstrom, Charles T. & Samolyk, Katherine A., 1995. "Loan sales as a response to market-based capital constraints," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 627-646, June.
    11. James, Christopher, 1988. "The use of loan sales and standby letters of credit by commercial banks," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 395-422.
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    Keywords

    Bank capital; Bank loans;

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