Product market imperfections and loan commitments

Article Abstract:

I show in a model of competitive banks that the characteristics of loan contracts are affected by product market imperfections in the borrower's industry. A bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and thus dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank. While it is individually rational for a firm to obtain a loan commitment, all the firms in that industry taken together are made worse off by the existence of loan commitments. (Reprinted by permission of the publisher.)

Analysis, Economic aspects, Bank loans, Imperfect competition

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Demand-Deposit Contracts and the Probability of Bank Runs

Article Abstract:

The ex ante probability of bank runs are computed using a model in which the equilibrium outcome is determined by the fundamentals. Conditions are identified in which banks improve overall welfare, and a demand-deposit contract is constructed that trades off the costs of runs against liquidity benefits.

Commercial Banks, Forecasts, trends, outlooks, Management dynamics, Banking industry, Management, Forecasts and trends, Market trend/market analysis, Comparative analysis, Company business management, Bank deposits, Bank runs

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Capital Structure Equilibrium under Market Imperfections and Incompleteness

Article Abstract:

Supply-side equilibrium theory is generalized to accomodate market imperfections and incompletensess if they have a cost advantage. Profit requires an optimal capital structure from the corporate structure.

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