Toward a theory of bank loan commitments

Anjan V. Thakor

doi:10.1016/0378-4266(82)90022-X

Toward a theory of bank loan commitments

Anjan V. Thakor

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43 Scopus citations

Abstract

The characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent-claims framework, and valuation expressions are derived for these commitments. The valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments. Finally, a simple, two-period, asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts.

Original language	English
Pages (from-to)	55-83
Number of pages	29
Journal	Journal of Banking and Finance
Volume	6
Issue number	1
DOIs	https://doi.org/10.1016/0378-4266(82)90022-X
State	Published - Mar 1982

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title = "Toward a theory of bank loan commitments",

abstract = "The characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent-claims framework, and valuation expressions are derived for these commitments. The valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments. Finally, a simple, two-period, asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts.",

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AB - The characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent-claims framework, and valuation expressions are derived for these commitments. The valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments. Finally, a simple, two-period, asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts.

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U2 - 10.1016/0378-4266(82)90022-X

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Toward a theory of bank loan commitments

Abstract

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