TY - JOUR
T1 - The valuation of collateral in bank lending
AU - Luck, Stephan
AU - Santos, João A.C.
N1 - Publisher Copyright:
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington.
PY - 2024/8
Y1 - 2024/8
N2 - We study the valuation of collateral by comparing spreads on loans by the same bank, to the same borrower, at the same origination date, but backed by different types of collateral. Pledging collateral reduces borrowing costs by 23 BPS on average. The effect varies across different types of collateral, with marketable securities being most valuable, and real estate and accounts receivables and inventory being more valuable than fixed assets and a blanket lien. Further, the rate reduction from pledging collateral is sensitive to the value of the underlying collateral, and collateral tends to be more valuable for smaller and private firms and for loans with longer maturity.
AB - We study the valuation of collateral by comparing spreads on loans by the same bank, to the same borrower, at the same origination date, but backed by different types of collateral. Pledging collateral reduces borrowing costs by 23 BPS on average. The effect varies across different types of collateral, with marketable securities being most valuable, and real estate and accounts receivables and inventory being more valuable than fixed assets and a blanket lien. Further, the rate reduction from pledging collateral is sensitive to the value of the underlying collateral, and collateral tends to be more valuable for smaller and private firms and for loans with longer maturity.
UR - http://www.scopus.com/inward/record.url?scp=85175339419&partnerID=8YFLogxK
U2 - 10.1017/S0022109023000704
DO - 10.1017/S0022109023000704
M3 - Article
AN - SCOPUS:85175339419
SN - 0022-1090
VL - 59
SP - 2038
EP - 2067
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 5
ER -