This paper links the current subprime mortgage crisis to a decline in lending standards associated with the rapid expansion and changes in the structure of this market. We show that lending standards declined more in areas that experienced faster credit growth. We also find that the entry of new...

Recent theoretical models argue that a bank's organizational structure reflects its lending technology.A hierarchically organized bank will employ mainly hard information, whereas a decentralized bank will rely more on soft information.We investigate theoretically and empirically how bank...

This paper presents evidence of banks using accounting discretion to overstate the value of distressed assets. In particular, we show that the stock market applies far greater discounts to a bank’s real estate loans and mortgage-backed securities than are implicit in the book values of these...