Banque de France study examines bank loan portfolio management behaviour
The latest working paper published by the Banque de France in April examines the relationship between 'competitive investors' and 'impatient banks' in dealing with long-term loan portfolios.
Author Henri Pagès writes there is a "continuous-time delegated monitoring problem between a competitive investor and an impatient bank monitoring a pool of long-term loans subject to Markovian 'contagion'".
The author says moral hazard induces a foreclosure bias on behalf of the bank unless the bank is
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