This paper develops a specification of the credit scoring model with high discriminatory power to analyze data on loans at the retail banking market. Parametric and non- parametric approaches are employed to produce three models using logistic regression (parametric) and one model using...

We study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature and default may lead to the sale of the firms' assets at fire sale prices when markets are illiquid. This incompleteness is the only friction in the model and the...

This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs' investment returns decline, and we study which type of policy could revigorate an economy in a trough. We...

Much of the literature on the economics of mortgage markets has studied the FRM-ARM choice made by individual borrowers. However, to decide if the outcome of such a choice is efficient or approximately so, it is necessary to explore the question of optimal risk-sharing in mortgage contracts. But...

Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm's type to its competitors. Thereby,...

This paper addresses the impact of developments in the credit risk transfer market on the viability of a group of systemically important financial institutions. We propose a bank default risk model, in the vein of the classic Merton-type, which utilizes a multi-equation framework to model...

This paper contributes to the literature on default in general equilibrium. Borrowing and lending takes place via a clearing house (bank) which monitors agents and enforces contracts. Our model develops a concept of bankruptcy equilibrium that is a direct generalization of the standard general...

We develop a sovereign debt model with official and private creditors where default risk depends on both the level and the composition of liabilities. Higher exposure to official lenders improves incentives to repay but carries extra costs, such as reduced ex-post flexibility. The model implies...

In higher education, pure credit market funding leads to underinvestment due to insufficient risk pooling, while pure income-contingent loan funding leads to overinvestment. We analyze whether funding diversity – a market structure in which credit markets coexist alongside income-contingent...

In this article, we have used a continuous EBIT-based model to study deferred taxation under default risk. Quite surprisingly, default risk has been disregarded in research on deferred taxation. In order to underline its importance, we first calculated the probability of default, over a given...