Liberty Street Economics: Does Bank Monitoring Affect Loan Repayment?

F E D E R A L   R E S E R V E   B A N K   o f   N E W  Y O R K LIBERTY STREET ECONOMICS   Does Bank Monitoring Affect Loan Repayment?    Nicola Branzoli and Fulvia Fringuellotti    Bank monitoring consists of all supervising activities aimed at verifying and improving the likelihood that a borrower complies with its loan obligations. Banks monitor borrowers after originating loans to reduce moral hazard and prevent loan losses. Although monitoring represents an important activity of bank business, evidence of its effect on loan repayment is scant. In this post, the authors shed light on whether bank monitoring fosters loan repayment and to what extent it does so.    READ MORE

 

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