Banque de France study examines bank loan portfolio management behaviour

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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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