The implications of off-balance sheet financing in commercial banks

摘要

In the early 1980's banks appeared to be dying. Their market share compared to other sources of credit was plummeting. News of their demise, however, proved premature as this trend was eventually explained by changes in banks' method of issuing credit from on-balance sheet to off-balance sheet. With off-balance sheet loans, the bank originates the loan, but does not keep the financial claim against the borrower. Instead, the purchaser of the off-balance sheet loan has the claim on the borrower directly. This explains the decline in the market share of banks since off-balance sheet loans are not bank assets. After adjusting for off-balance sheet loans, the number of loans issued by commercial banks is stable.;The shift of bank funding off-balance sheet, while explaining the decline in market share, can have a drastic impact on the banking system. Off-balance sheet items allow banks to avoid Glass-Steagall and subsequent regulation, and can lessen the constraints of monetary policy. In order to gain insight into this change, three aspects of off-balance sheet activities will be examined: the level of off-balance sheet activities of a bank, the ability of purchasers of off-balance sheet loans to determine quality, and the changes off-balance sheet loans cause on the balance sheet. Chapter one discusses the extent to which banks can make off-balance sheet loans without losing their competitiveness in the loan market. Banks are seen as having an information advantage when making loans to small borrowers. The advantage can be weakened by not keeping enough loans on the balance sheet. This leads to an optimal amount of on-balance sheet loans. Chapter two examines the question of how banks can sell loans to investors. The main focus is on the information asymmetries that exist between the borrower and bank, and also between the bank and investor. Finally, the third chapter looks at how certain types of off-balance sheet loans change the timing of income to banks and the possible tax implications of this.