Bester, Helmut; Gehrig, Thomas; Stenbacka, Rune - C.E.P.R. Discussion Papers - 2012
We analyze the effect of loan sales on the intensity of costly screening. Loan sales strengthen screening incentives … when screening primarily improves the bank’s ability to identify profitable loans and when banks retain most of those … profitable loans. However, loan sales dampen screening incentives when the benefit of screening primarily helps to weed out …