tailieunhanh - BANK LOAN COMMITMENTS AND INTEREST RATE VOLATILITY

From March 2006 to December 2007, the ratio of past-due auto loans to total auto loan ranged from to , whereas the ratio of past-due CCRs to total CCRs for the sam period ranged from to . The ratio of past-due auto loans to total auto loan indicates that auto loans have a much lower risk of default than credit card loans. The les risky environment in the car loan market allows auto distributors to offer an interest rate o 0% for up to 18 months on auto loans, in contrast with the very high interest rate on cred card loans. This could be. | BANK LOAN COMMITMENTS AND INTEREST RATE VOLATILITY Journal of Banking and Finance 5 1981 497-510. North-Holland Publishing Company BANK LOAN COMMITMENTS AND INTEREST RATE VOLATILITY Anjan THAKOR Indiana University Bloomington IN 47401 USA Hai HONG Singapore University Singapore 0511 Stuart L GREENBAƯM Northwestern University Evanston ỈL60201 USA Received November 1979 final version received March 1981 Bank loan commitments are examined in the context of option pricing models and a valuation formula is obtained. The partial takedown phenomenon which is both distinctive and vexatious is considered in detail. Finally estimates of the value of . bank loan commitments and their sensitivity to interest rate changes are provided. 1. Introduction Although widely recognized as basic instruments of our credit markets bank loan commitments remain vaguely These commitments are sources of capital gains and losses in periods of volatile interest rates yet they are not recorded in bank balance sheets. At best loan commitments occupy the murky status of off-balance sheet or footnote items. Commitment accounting may well explain a substantial portion of the widely observed insensitivity of bank balance sheets to financial deterioration in periods of economic instability. One apparent reason for the vagueness surrounding loan commitments is that we lack a well-established method for valuing them. This paper clarifies the positive problem of accounting for loan commitments and the normative problem of pricing them. The authors gratefully acknowledge the helpful suggestions of George Kanatas and an anonymous referee. Financial support for this project was provided by Northwestern University s Banking Research Center. lAs of year-end 1978 unused formal loan commitments at larger commercial banks in the . were approximately 200 billion or 15 percent of the banking system s footings. At the same time loans made under commitments totalled approximately 115 billion or 15

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