Topic: Do Banks Extract Informational Rents through Collateral?

Speaker: Adrian Van Rixtel, Senior Economist in the Financial Markets Unit of the Monetary and Economic Department, Bank for International Settlements

Date: June 24^th (Wed.)

Time: 12:30pm-1:30pm

Location: Building 1, Room 501, Faculty Lounge

Language: English

Abstract:

This paper investigates if informational monopolies resulting from relationship lending and market concentration allow for rent extraction through collateral. Our identification strategy hinges on the notion that informational equalization shocks (such as equity IPOs) erode rent seeking opportunities, while competing theories do not rely on information asymmetries among lenders. Using a unique hand-collected database of 9,288 bank loans obtained by 649 listed Chinese firms, we find that collateral incidence is positively associated with relationship intensity and market concentration, while this effect is moderated after the IPO of the respective firm. These results are obtained controlling for a large number of loan and firm characteristics, monetary policy variables and regional macroeconomic characteristics. We also demonstrate important cross-sectional variation among borrowing firms: rent extraction through collateral is significantly less pronounced for more transparent and less risky firms. Our results hold for a battery of robustness tests, both included in the paper and in an Internet appendix (available upon request). Furthermore, we provide new evidence on the determinants of collateral in Chinese bank lending markets.

About the speaker:

Since joining the Bank for International Settlements (BIS, Basel) in 2012, Adrian van Rixtel has been working as Senior Economist in the Financial Markets Unit of the Monetary and Economic Department. Before joining the BIS, he was Head of International Financial Analysis at the Bank of Spain (Banco de Espa?a) in Madrid. He also held positions at the Netherlands Central Bank and the European Central Bank and at private financial institutions in Amsterdam and London, primarily in research related activities. Adrian took his MA at Tilburg University and his Ph.D. at the Tinbergen Institute, Free University Amsterdam. He has published in a wide range of journals and books. His research has been discussed in The Economist and Wall Street Journal. His current research focuses on Chinese banking, determinants of European banks’ funding, sovereign exposures of euro area banks and structural banking reforms.