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Optimal loan size and mortgage rationing

Article Information:

Title:

Optimal loan size and mortgage rationing

Author(s):

Raymond Y.C. Tse

Journal:

Journal of Property Finance

Year:

1997

Volume:

8

Issue:

3

Page:

195 - 206


ISSN:

0958-868X


DOI:

10.1108/09588689710175024

Publisher:

MCB UP Ltd

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Abstract:

Shows that loan loss expectation plays an important role in determining credit rationing. Shows that the optimal loan size depends on the marginal loan loss, and not on the initial portfolio position of the bank. While an increase in loan administrative costs leads to a larger optimal loan size, restricting the loan size is used to minimize default risks. Also shows that under conditions of uncertainty when default risk is present, and if absolute risk aversion is increasing in wealth, a rise in wealth of the bank will lower the amount of asset to be allocated in risky loans even if credit can be properly priced.

Keywords:

Borrowing, Credit, Financing, Loans, Mortgages


Article Type:

Conceptual Paper


Article URL:

http://www.emeraldinsight.com/10.1108/09588689710175024

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