Banking regulation and collateral screening in a model of information asymmetry Paper
This paper explores the impact of banking regulation on a competitive credit market with ex-ante asymmetric information and aggregate uncertainty. I consider two regulatory interventions, capital requirements and a regulatory stress-test. The stress-test provides a dual role for collateral. First, as is standard in adverse selection problems it allows banks to screen firms. Second it also the bank to satisfy any regulatory constraint by reducing the loss given default on bank loans. Banking regulation impacts both the loan terms and the type of equilibrium, if firms do not have sufficient collateral, a pooling equilibrium exists.
Macroeconomic implications of insolvency regimes Paper
The impact of creditor and debtor rights following firm insolvency are studied in a firm dynamics model where defaulting firms choose between restructuring or exit. The model accounts for differing effects of productivity shocks across economies that differ in the credit/debtor rights. Following a negative shock labour productivity falls sharply in a creditor-friendly regime such as the UK while in a debtor-friendly regime such as the US, there is a larger employment response. This paper suggests a possible explanation for the different employment and labour productivity response in the UK and US since the financial crisis.
A Model of Credit Rationing in SME Loan Applications [Available on request]
This paper builds a modelling framework of SME loan applications that is consistent with existing several observable features of the loan market. In the first stage firms decide whether to apply for a loan. Firms that do not apply for loans may do so for two reasons, either they do not need a loan or they believe they will not obtain a loan. In the second stage, a firm’s loan application may not be successful. A firm may receive only part of the funding it had requested, or it may have its loan application outright.
Work in Progress
The effect of the financial crisis on bank lending to SMEs joint with Alan Crawford
In this paper we develop a model of bank lending to small-to-medium enterprises (SMEs). Combining a bi-annual survey of European SME financing decisions with a contemporaneous EU-wide banking conditions survey, we empirically evaluate the determinants of successful loan applications during the financial crisis.