Transactions accounts and loan monitoring

Loretta Mester, Leonard Nakamura and Micheline Renault

No 04-20, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We provide evidence that transactions accounts help financial intermediaries monitor borrowers by offering lenders a continuous stream of data on borrowers? account balances. This information is most readily available to commercial banks, but other intermediaries, such as finance companies, also have access to such information at a cost. Using a unique set of data that includes monthly and annual information on small-business borrowers at an anonymous Canadian bank, we provide empirical evidence that transactions account information helps the bank to monitor commercial borrowers? operating loans and we show the direct mechanism through which an intermediary can use this information in monitoring and controlling moral hazard problems associated with a rising probability of bankruptcy.

Keywords: Loans (search for similar items in EconPapers)
Date: 2004
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Related works:
Journal Article: Transactions Accounts and Loan Monitoring (2007)
Working Paper: Transactions accounts and loan monitoring (2005)
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