Farm Lender Asset and Funding Decisions: A Micro-Model Application

Bank loan supply and monetary policy transmission in Germany: An assessment based on matching impulse responses

The boundary between court intervention and financial supervision should be reasonable. On interest rate regulation, there was a balanced power allocation between judiciary and administration. On the one hand, the People’s Bank of China （PBC） was authorized by the Law on PBC to independently implement interest rate policies on financial loans. Due to the fact that interest rate control conflicts with market mechanism, the PBC initiated interest rate marketization reform on RMB financial loans and completely removed rate ceilings and floors. It turned its role from ex ante control to ex post regulation, including interest rate monitor, special inspection, and administrative penalty. On the other hand, the Supreme People’s Court of China （SPC） has historically acquired jurisdiction on the interest rate of informal loans. It made the four-time interest rate rule” and ceiling of 24% rule”, and restricted its authority to informal loans. As the policy changes, however, the judiciary expanded its jurisdiction to the interest rate of financial loans. This power expansion is embodied in two ways: abstract rulemaking and case-based adjustment. Regarding abstract rulemaking, the SPC issued unified requirements to limit financial interest rates by judicial documents such as the Several Opinions on Further Strengthening Financial Adjudication, which unfavorably impacts the power allocation between judiciary and administration. The formal financial market with high compliance does not require uniform rate control because interest rate liberalization is beneficial for reflecting real credit costs and optimizing resource allocation. If a money-borrower has a high credit risk, the lender would require a high rate to cover this risk, which is not necessarily unreasonable. It is problematic for the judiciary to adopt a one-size-fits-all” strategy to uniformly restrict financial rates, as the judicial control lacks formal rationality, substantive rationality or explicit delegation. The abstract rule-making of SPC violates the principle of judicial deference” and should be rectified. For case-based interest rate intervention, local courts may adjust financial rates according to discretion in adjudication. Empirical study in this article finds that court intervention on financial interest rates is not consistent. Whether the court steps to intervene is influenced jointly by several factors, including loan type （personal or business loan）, purpose （for consuming or commercial use）, amount, and maturity. In case-based interventions, the court may refer to the interest rate rules on informal loans, apply the principle of fairness, exert adjustment of overdue rates, or implement the policy of financial consumer protection or other public policies. The tendency of intervention should be corrected when the intervention lacks reasoning and causes confusion. Judicial intervention in financial loan interest rates should be limited to case adjustment under the framework of legal dogmatics. Intervention should be exercised exceptionally rather than routinely. In order to achieve a higher level of rule of law, specific rules should be applied preferably to abstract principles, while public policies should be converted to practical rules before application.

Bank Loan Supply and Corporate Capital Structure: Recent Evidence from China

This paper investigates the pass-through from observed and expected policy interest rates to the remarkably high lending rates in the Brazilian economy, accounting for financial-institution specific characteristics, borrower types, asymmetric adjustment and persistence in loan rates. We use a unique and non-public dataset with expected variables identified by professional forecasters and apply a fixed-effects approach to alternative specifications as robustness checks. Financial institutions correctly forecast the next target level of the policy rate and anticipate adjustments in their loan rates. There is evidence of over-proportional and positively asymmetric pass-through to loans with higher interest rate margins, implying a positive correlation between degrees of pass-through and spreads across persistent lending rates. These findings contribute to explain why loan interest rates are so high in the Brazilian economy.

Relationship Lending within a Bank-Based System: Evidence from European Small Business Data

Purpose – This paper aims to investigate whether there is heterogeneity in the relationship between the bank loan interest rate and its determinants using the quantile regression method and to reconcile some conflicting findings in prior literature. Design/methodology/approach – First, the effects of 18 determinants were examined on the bank loan interest rate using the ordinary least squares method (OLS). Second, it was investigated whether the relationship between the loan rate and its determinants is heterogeneous across quantiles of loan rates using the quantile regression method. Findings – Considerable heterogeneity was found in the relationship between the loan rate and its determinants. Specifically, a determinant that is beneficial for the bank loan rate, on average, as revealed by the OLS method may become unimportant or even detrimental for firms located at extremely high or low loan rate quantiles. By revealing extreme heterogeneity in the relationship between the loan rate and some of its determinants, the authors potentially explain two conflicting findings in prior literature. Originality/value – The conventional OLS method masks the heterogeneity in the relationship between the bank loan interest rate and its determinants. Quantile regression can be used to supplement the OLS estimates to gain a more detailed and complete picture of the relationship between the dependent variable and explanatory variables.

The impact of the liquidity coverage ratio on money creation: A stock-flow based dynamic approach

As an alternative to traditional bank financing, companies (especially small and medium-sized) can opt for loans from innovative financial facilities: peer-to-peer lending and crowdfunding platforms. When using these alternative financing opportunities, it is very important to identify the main factors of the business loan interest rate and properly assess the overall cost of borrowing. This paper summarizes the scientific discussion on the issue of innovative business funding sources and one of the most important ratios referred to reasonably compare the price of financing sources and the related expenses. Therefore, the main purpose of this research is to identify the internal and external factors of interest rate on business loans and determine the overall total annual rate of charge for business loans on innovative financing platforms. After the analysis of academic literature and statistical data of crowdfunding and peer-to-peer lending market, the authors used the methods of correlation-regression and factor analysis to identify the factors that determine the interest rate of business loans on crowdfunding and peer-to-peer platforms; and scenario analysis to evaluate the total annual rate of charge for business loans. According to the results of correlation-regression and factor analysis, the summarized factors of business loan interest rate are economic environment, competitive environment, and results of the platform performance. External factors appeared to have a much greater impact on the interest rate for business loans in crowdfunding and peer-to-peer lending platforms than internal. The assessment of the total annual rate of charge for business loans confirmed that the peer-to-peer and crowdfunding platforms offer a lower rate than traditional financing institutions, on the other hand, the total rate at the crowdfunding platforms is higher compared to peer-to-peer lending platforms, due to the higher administrative fees and interest rates. The outcomes of this research expanded the scope of research on the sector of financial innovation. The research revealed the peculiarities of crowdfunding and peer-to-peer lending, the factors that affect a loan interest rate, and the real price that business owners have to pay for borrowed funds. Obtained results could be relevant to both lending platforms and businesses seeking to identify and compare the real cost of traditional and alternative financing. Keywords: financial innovation, alternative financing, financial technologies, factors of interest rate, price of borrowing, the total annual rate of charge for business loans.

Identifying the macroeconomic effects of credit supply disruptions is difficult because many of the same factors that influence the supply of bank loans can also affect the demand for credit. Using bank-level responses to the Federal Reserve's Senior Loan Officer Opinion Survey, we decompose the reported changes in lending standards -- a commonly-used indicator of changes in credit supply conditions -- into a component that captures the change in banks' lending posture in response to bank-specific and macroeconomic factors that also affect loan demand and a residual component, which provides a cleaner measure of fluctuations in the effective supply of bank-intermediated credit. When included in a standard VAR framework, shocks to our measure of loan supply are associated with substantial declines in output and in the capacity of businesses and households to borrow from the banking sector, as well as with a sharp widening of credit spreads and a significant easing of monetary policy. We corroborate the interpretation of our series as movements in the supply of bank loans using a detailed loan-level data set: A regression of individual loan amounts on the corresponding interest rate spreads -- where the latter is instrumented with our bank-level loan-supply shifter -- yields the semi-elasticity of loan demand between 1.0 and 1.5b.

This study aims to analyze the effectiveness of the monetary policy transmission mechanism through the interest rate channel on inflation in Indonesia. The economic variables used in this study include the Bank Indonesia interest rate, deposit interest rate, and loan interest rate, with data spanning from January 2011 to December 2023. The method employed is the Error Correction Model (ECM) analysis, which allows the researcher to evaluate the relationship between these variables in both the short and long term. The results of the ECM analysis show that the Bank Indonesia interest rate, as one of the primary instruments of monetary policy, has a positive and statistically significant relationship with inflation in both the short and long term. In other words, each increase in the Bank Indonesia interest rate consistently raises inflation during both periods, highlighting the key role of the benchmark interest rate in the transmission of monetary policy in Indonesia. On the other hand, the variables of the deposit interest rate and loan interest rate exhibit different results. Both variables show a negative and statistically significant relationship with inflation in the short and long term. This means that an increase in the deposit and loan interest rates tends to reduce inflation, indicating that raising interest rates in these instruments can help mitigate inflationary pressures by curbing consumption, investment, and the amount of money circulating in the market. This study provides important insights into how the monetary policy transmission mechanism operates in Indonesia through the interest rate channel and highlights the differing impacts of the Bank Indonesia interest rate and other interest rates on inflation over various timeframes.

Probability causal inference of interest rate fluctuations: Evidence from private credit in emerging markets

This study used the classical least squares method to empirically examine interest rate deregulation effect on the lending operations of Nigerian commercial banks for the period 1970 to 2013. The period was divided into two policy regime periods; the regulated interest rate era spanning 1970-1986 and the deregulated period 1987-2013. The Chow test was applied to examine if there was any significant difference in the relationship between interest rate and commercial banks’ lending for the two periods. The empirical result obtained for the interest rate regulation era showed that interest rate spread and statutory liquidity ratio had negative and significant effect on the volume of commercial banks’ loans, while fixed exchange rate had negative and insignificant impact on banks’ loans and advances. It was found that Monetary Policy Rate (MPR) and inflation rate exert a positive and significant impact on banks’ loans for the period. For the deregulation era, the result showed that MPR and the exchange rate had significant impact on banks’ loans and advances. While the former exerted a negative impact, the later had a positive influence on loans and advances. Interest rate spread, statutory liquidity ratio and inflation rate were found not to have significantly impacted on commercial banks’ loans and advances for the period. The chow test result confirms the impact of deregulation on volume of commercial banks loans and advances due to the deregulation of interest rate. The study submits that, there exist a relatively inelastic relationship between interest rate spread and banks’ loans at the deregulated interest rate era. This was largely attributed to imperfections as well as the under-developed nature of the financial market. The study suggests that the monetary authority should evolve a guided interest rate deregulation regime with MPR increasingly used to regulate the activities of commercial banks in the area of loans and advances. In order to deepen the financial sector, there is the need to improve financial infrastructure which will enhance commercial bank operations resulting in a more competitive financial market and an improved investment climate in the country. Keywords : Interest rate, bank lending, Deregulation, chow test

Historically, actual inflation could not reach the inflation target, resulting in a deviation between the actual inflation and the inflation target. To overcome this problem, Bank Indonesia implemented a monetary policy transmission channel for inflation in Indonesia through the loan interest rate channel, the exchange rate channel, and the consumption credit channel. This article aims to determine the effect of the monetary policy transmission channel on inflation in Indonesia, as seen from the interest rate, exchange rate, and consumption credit channels. The research method of this article is quantitative with VAR/VECM analysis techniques. The results of the study state that (1) in the short term, interest rates on loans and consumption credit have a significant effect on the inflation rate; (2) in the long run, loan interest rates and the rupiah exchange rate have a significant effect on the inflation rate; (3) when shocks occur in loan interest rates, the rupiah exchange rate, and consumer credit, the inflation rate will respond differently; and (4) changes in interest rates on loans and consumption credit are effective in explaining variations in changes in the inflation rate. The results of this study imply that the determination of lending rates by each bank must still refer to the reference interest rate (BI7DRR), public sentiment and the volatility of the rupiah exchange rate in the short term must be the focus of consideration in the exchange rate channel, and consumption must consider the feasibility of the 5C aspect. Keywords: Inflation, Loan Interest Rates, Rupiah Exchange Rates, Consumption Credit

This exploratory study, using a sample of 115 new bank loans to small owner-managed firms, demonstrates that a simple categorical pricing model can explain a substantial part of the variation in interest rate premia. It appears that loan term and size interact (in a categorical schema) in their association with interest rate premia. It is suggested that this is more likely a product of co-determination rather than causation. There appear to be significant categorical pricing effects attributable to human capital, industry, and collateral effects. The role of collateral remains ambiguous, although it appears that source matters as much as form. Although further testing of the model is warranted, the results generally indicate that a simple categorical model may be an appropriate representation of loan pricing for small firms and that this can be used to test the value to borrowers of investing in quality signals and information cues.

SummaryThe available empirical evidence provides mixed views of small businesses' relative bankruptcy risk. The difference between Churchill and Lewis' findings and SBA's and Kirchhoffs' may well lie in the difference in definition of firm “size” used. Risk is not evenly spread; the smallest businesses seem to be less risky than the intermediate size businesses. Yet, Churchill and Lewis' actual loss evidence suggests that small business risk is only marginally greater than for large businesses, the loss rate is still equivalent to less than one half of one percent.The assumptions that lenders will adjust the amount of debt they allow small business clients rather than the interest rate is not rejected by this evidence. In fact, the much higher profitability of the small business department reported by Churchill and Lewis suggests that the bank's loan interest rates are more than high enough to cover loss risk and fixed costs, and borrowers provide profitable deposits. Thus, the logic of my utility theory hypothesis provides a reasonable explanation for the relatively higher debt levels of small firms compared to large firms. But, then the Kirchhoffs' findings cast some doubt on whether small firms actually have higher debt levels. None of these findings justify the 2.75 percent interest rate spread allowed by SBA.