Portal de Periódicos da CAPES

TRANSACTIONS ACCOUNTS AND LOAN MONITORING

2005; Federal Reserve Bank of Philadelphia; Linguagem: Inglês

10.21799/frbp.wp.2005.14

2574-1004

Loretta J. Mester, Leonard I. Nakamura, Micheline Renault,

We provide evidence that transactions accounts help financial intermediaries monitor borrowers by offering lenders a continuous stream of data on borrowers' account balances.This information is most readily available to commercial banks, but other intermediaries, such as finance companies, also have access to such information at a cost.Using a unique set of data that includes monthly and annual information on small-business borrowers at an anonymous Canadian bank, we find a significant relationship between loans becoming troubled and the number of prior borrowings in excess of collateral.Since the bank monitors the value of collateral (defined as accounts receivable plus inventory) at high frequency through the transactions account of the borrower, this unique access to useful information gives banks an advantage over other lenders.We also find that banks more intensively monitor loans that have a higher number of violations of the collateral limit.