Theory of Debt & Bank Lending

Description:

The lecture deals with the theoretical foundations behind the credit business of banks and the management of bank credit in practice. Topics covered include basic principles of credit, the credit business of banks (organization of the credit business, banking regulation, credit analysis, option-based valuation of debt instruments) and the optimality of credit contracts (credit contracts and contract theory, credit under limited liability, information production in credit relationships, credit in the context of incomplete contracts).

Organization:

All further information and teaching materials are available on Ilias: https://ilias.uni-hohenheim.de/goto.php?target=crs_1345496&client_id=UHOH 

Literature (this is only a selection):

• Freixas, Xavier and Rochet, Jean-Charles (2008): Microeconomics of Banking, 2nd Edition, MIT Press.

• Merton, Robert (1974): On the pricing of Corporate Debt: The Risk Structure of Interest Rates. Journal of Finance, vol. 29, 449-470.

• Hart,Oliver and Moore, John (1998): Default and Renegotiation: A Dynamic Model of Debt. Quaterly Journal of Economics, vol. 113, 1-41.

• Innes, Robert (1990): Limited Liability and Incentive Contracting with Ex-ante Action Choices. Journal of Economic Theory, vol. 52, 45-67.

• Stiglitz, Joseph and Weiss, Andrew (1981): Credit Rationing in Markets with Imperfect Information. American Economic Review, vol. 71, 393-410.

• Sharpe, Steven (1990): Asymmetric Information, Bank Lending and Implicit Contracts: A Stylized Model of Customer Relationships. Journal of Finance, vol. 45, 1069-1087.