Credit Rationing with Symmetric Information
30 Pages Posted: 14 Apr 2008 Last revised: 26 Jun 2009
Date Written: September 4, 2008
Without denying the importance of asymmetric information, this article purports the view that credit rationing may also originate from a lender's inability to classify loan applicants in proper risk categories. This effect is particularly strong when novel technologies are involved. Furthermore, its relevance may increase with the importance assigned to internal rating systems by the Basel accord.
This article presents a measure of the inadequacy of a lender's classification criteria to the qualitative features of prospective borrowers. Even without information asymmetries, credit rationing may occur if this quantity reaches too high a value. Furthermore, some general principles are outlined, that may be used by lenders in order to change their classification criteria.
Keywords: Credit Rationing, Risk Categories, Internal Rating Systems, Deciding not to Decide, Problem Decomposition
JEL Classification: D89, E51
Suggested Citation: Suggested Citation