Credit Rationing with Symmetric Information

Fioretti, Guido (2008): Credit Rationing with Symmetric Information.

Abstract

Without denying the importance of asymmetric information, this article purports the view that credit rationing may also originate from a lender's inability to classify loan applicants in proper risk categories. This effect is particularly strong when novel technologies are involved. Furthermore, its relevance may increase with the importance assigned to internal rating systems by the Basel accord.

This article presents a measure of the inadequacy of a lender's classification criteria to the qualitative features of prospective borrowers. Even without information asymmetries, credit rationing may occur if this quantity reaches too high a value. Furthermore, some general principles are outlined, that may be used by lenders in order to change their classification criteria.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit Rationing, Risk Categories, Internal Rating Systems, Deciding not to Decide, Problem Decomposition
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D89 - Other; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

References

A.K. Mishra Indian Venture Capitalists Investment Evaluation Criteria. Indian Institute of Management, Technical Report 2005.