Transactions Accounts and Loan Monitoring
45 Pages Posted: 14 Sep 2005
Date Written: June 2005
Abstract
The authors provide evidence that transactions accounts help financial intermediaries monitor borrowers by offering lenders a continuous stream of data on borrowers' account balances. This information is most readily available to commercial banks, but other intermediaries, such as finance companies, also have access to such information at a cost. Using a unique set of data that includes monthly and annual information on small-business borrowers at an anonymous Canadian bank, the authors find a significant relationship between loans becoming troubled and the number of prior borrowings in excess of collateral. Since the bank monitors the value of collateral (defined as accounts receivable plus inventory) at high frequency through the transactions account of the borrower, this unique access to useful information gives banks an advantage over other lenders. The authors also find that banks more intensively monitor loans that have a higher number of violations of the collateral limit.
Keywords: Collateral, Asset-based lending, Operating loan, Monitoring, Transactions account
JEL Classification: G10, G20, G21, M41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Relationship Lending and Lines of Credit in Small Firm Finance
By Allen N. Berger and Gregory F. Udell
-
Lines of Credit and Relationship Lending in Small Firm Finance
By Allen N. Berger and Gregory F. Udell
-
Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms
-
Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms
-
Does Distance Still Matter? The Information Revolution in Small Business Lending
-
Does Distance Still Matter? The Information Revolution in Small Business Lending
-
By Allen N. Berger, Philip E. Strahan, ...
-
By Allen N. Berger, Nathan Miller, ...
-
By Allen N. Berger, Nathan Miller, ...
-
By Allen N. Berger and Gregory F. Udell