Credit Rationing with Symmetric Information

30 Pages Posted: 14 Apr 2008 Last revised: 26 Jun 2009

Date Written: September 4, 2008

Abstract

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

Fioretti, Guido, Credit Rationing with Symmetric Information (September 4, 2008). Available at SSRN: https://ssrn.com/abstract=1118730 or http://dx.doi.org/10.2139/ssrn.1118730

Guido Fioretti (Contact Author)

University of Bologna ( email )

Via Capo di Lucca 34
Bologna, 40126
Italy

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