In Japan, loans with 100% guarantees account for more than half of all loans covered by public credit guarantee schemes, but banks claim that they do not offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents evidence of adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.
Kuniyoshi Saito, Daisuke Tsuruta, 14 November 2014
Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell, 29 June 2014
Small and medium-size enterprises (SMEs) often report difficulties in obtaining external finance. Based on new research, this column argues that these difficulties are not due to greater financial risks associated with SMEs. Instead, they are the result of imperfections in the market for external finance that negatively affect smaller and younger enterprises. The same research has shown that these types of firms are also the most reliant on external finance to support their investment and growth.
Olivier Coibion, Yuriy Gorodnichenko, Marianna Kudlyak, John Mondragon, 29 January 2014
One popular explanation for the increase in US household debt in the years before the subprime mortgage crisis is that households with stagnating incomes borrowed more to ‘keep up with the Joneses’. This column presents recent research that questions this explanation. Low-income households in high-inequality regions in fact borrowed relatively little compared to similar households in low-inequality regions. A theoretical model in which greater local income inequality facilitates the screening of loan applicants makes predictions that are consistent with the data.