Information can substitute for collateral, BoE paper finds
Strong lending relationships can insulate a firm during booms and busts
A firm that is well known to a bank may not be so vulnerable to the vagaries of collateral pricing, helping to insulate it from booms and busts, according to a new Bank of England staff working paper.
Lending relationships and the collateral channel, by Gareth Anderson, Saleem Bahaj, Matthieu Chavaz, Angus Foulis and Gabor Pinter, tests how flows of information may be linked to credit availability in the economy. Seminal studies have shown the importance of collateral in underpinning credit and
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