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Monitoring, liquidity, and institutional investment choice
Risk overhang and loan portfolio decisions
Despite operating under substantial regulatory constraints, we find that commercial banks manage their investments largely consistent with the predictions of portfolio choice models with capital market imperfections. Based on 1990-2002 data for small (assets less than $1 billion) U.S. commercial banks, net new lending to the business, real estate, and consumer sectors increased with expected sector profitability, tended to decrease with the illiquidity of existing (overhanging) loan stocks, and was responsive to correlations in cross-sector returns. Small banks are most appropriate for this ...
The social costs of bank capital
Evidence of bank information monopolies across the business cycle
Portfolio lending decisions at small commercial banks
Monitored finance, liquidity, and institutional investment choice
A presentation of a model predicting that debt or similar claims will dominate the portfolios of institutions that specialize in providing monitored finance. Among these institutions, those with greater liquidity needs should hold fewer monitored equity positions, make less risky loans, and monitor less intensively.