Credit Rationing Effects of Credit Value-at-Risk

Tinbergen Institute Discussion Paper No. 2004-032/2

18 Pages Posted: 22 Mar 2004

See all articles by Jan Frederik Slijkerman

Jan Frederik Slijkerman

AEGON Asset Management

D. J. C. Smant

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Casper G. de Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 12, 2004

Abstract

Banks provide risky loans to firms, which have superior information regarding the quality of their projects. Due to asymmetric information the banks face the risk of adverse selection. Credit Value-at-Risk (CVaR) regulation counters the problem of low quality, i.e. high risk, loans and therefore reduces the risk of the bank loan portfolio. However, CVaR regulation distorts the operation of credit markets. We show that a binding CVaR constraint introduces credit rationing and lowers social welfare. CVaR regulation also affects the operation of monetary policy.

Keywords: Credit rationing, Credit Value-at-Risk, asymmetric information, banks, regulation, loans

JEL Classification: D45, D82, E43, G21

Suggested Citation

Slijkerman, Jan Frederik and Smant, D. J. C. and De Vries, Casper, Credit Rationing Effects of Credit Value-at-Risk (March 12, 2004). Tinbergen Institute Discussion Paper No. 2004-032/2, Available at SSRN: https://ssrn.com/abstract=518942 or http://dx.doi.org/10.2139/ssrn.518942

Jan Frederik Slijkerman (Contact Author)

AEGON Asset Management ( email )

P.O. Box 202
2501 CE The Hague
Netherlands

D. J. C. Smant

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Casper De Vries

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
+31 10 408 8956 (Phone)
+31 10 408 9147 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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