Irish paper examines why banks set collateral conditions
Ex-ante risk and loan size are key factors, researchers say
A research paper published by the Central Bank of Ireland investigates the reasons why banks impose collateral conditions when loaning to small and medium enterprises.
In SME Collateral: risky borrowers or risky behaviour?, James Carroll and Fergal McCann use loan-level data on lending to Irish enterprises to examine two possible motives for banks’ demands for collateral.
The first motive, the authors say, is as an ex-ante stock-of-risk effect, with banks securing observably riskier loans to
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