مقاله انگلیسی رایگان در مورد بانکداری مشروط و سنتی (الزویر)

This paper compares and contrasts the optimality of debt based banking and state contingent banking2 . We argue that the advantage each of these banking types holds over the other might not be universal; rather it may be an outcome of the informational and institutional environment in which they operate. Assuming that the primary purpose of a bank is to manage the tradeoffs between neutralizing asymmetric information, minimizing risk and maximizing profitability, we build a model that identifies the conditions under which each banking type could become more optimal than the other. The efficiency and optimality of debt and state contingent contracts are widely debated topics in the literature. In the presence of costly state verification, debt is argued to be more optimal (e.g., Townsend, 1979; Gale and Hellwig, 1985; Williamson, 1987). The returns on a debt contract are determined ex-ante. They are independent of the outcome faced by the borrower, whether it’s the profitability of the underlying business or the income earned by an individual. This neutralizes the moral hazard concerns of the lender, making the debt contract much more efficient. Interestingly, this non-state contingent nature of debt has come under severe criticism in some of the recent literature. The pre-determined rate of return exposes the contract to multiple externalities, which can result in inefficient borrowing. Mian et al. (2017) explain the externality of debt by taking an exogenous view of the business cycle along with assuming myopia amongst borrowers and lenders. During the boom period, when the economy is doing well, the debt contracts should seem more optimal for both the lenders and the borrowers. This is because during an upturn, the defaults are low, resulting in a relatively secured return for the lenders while the borrower (particularly the borrowing firm) can enjoy the significant upside which the high growth period offers in the form of greater profits. During the downturn, when the economy underperforms, debt contracts should be less optimal as the possibility of defaults can end up imposing a cost on all parties. Ignoring the possibility of a downturn (when making decisions during an upturn) could be a possible cause of the debt externality. This externality can be neutralized by state contingent contracts. During an upturn or downturn, borrowers would have no incentive to over or under borrow in a state contingent contract. Another stream of literature explains the externality of a debt contract by highlighting that it can make the borrower more risk averse. Mostly, the literature assumes risk preference to be exogenous to the investor’s decision. Fischer (2013) argues that the inherent focus on returning the principal means that the borrowers would be risk averse in their decisions, making risk preference endogenous. Fischer (2013) explains the presence of this externality in the microfinance industry, where he argues that most microfinance finance ventures fail to become big businesses, owing to the fact that the debt contract makes the micro-borrowers inherently risk averse. Azmat et al. (2014) explain this externality by showing that returning the principal, which is an integral part of the debt contract, increases the riskiness of the decision in situations where the underlying projects are inherently risky. The challenge with these streams of literature is that they approach the question of debt externality from a social planner or spectator’s perspective. In the moment when the decision regarding the optimality of debt has to be taken by the investor, given the informational and institutional environment, debt contract remains the most optimal contract. The state contingent contract, owing to costly state verification, remains a less viable contract.