33
eScholarship provides open access, scholarly publishing services to the University of California and delivers a dynamic research platform to scholars worldwide. Anderson Graduate School of Management – Finance UC Los Angeles Title: Loan Commitments and Credit Demand Uncertainty Author: Greenbaum, Stuart , Northwestern University Kanatas, George , Indiana University Venezia, Itzhak , Hebrew University Publication Date: 03-01-1990 Publication Info: Finance, Anderson Graduate School of Management, UC Los Angeles Permalink: http://escholarship.org/uc/item/5r6003pq Abstract: We provide an explanation for loan commitments unrelated to borrower credit-worthiness. In our model, banks can use loan commitments to reduce uncertainty regarding their own future funding needs. Given a cost advantage to banks that can acquire such information, there exists an equilibrium demand for commitments by risk-neutral firms. The purchase of the loan commitment and the choice of contract terms reveals the buyer's private information regarding future credit needs. In order to ensure the sorting of the a priori indistinguishable applicants according to their private information, we show that a usage fee applied to the commitment-holder's unused credit line is necessary.
