Transactions Accounts and Loan Monitoring
January 1st, 1970 by
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We demonstration that transactions accounts, by providing continued observations on borrowers’ activities, employees financial intermediaries display borrowers. This dope is most readily available to commercial banks, which offer these accounts and lending together. We find that (1) monthly changes in accounts receivable are reflected in transactions accounts; (2) borrowings in surplus of collateral suggest credit downgrades and loan correspond with-downs; and (3) the lender intensifies monitoring in response. This is evidence on a legend issue in economic intermediation—there is an advantage to providing deposit-taking and lending jointly. But this advantage may have fallen as the cost of communication has declined. (JEL G10, G20, G21)
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