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Sequential Banking
Abstract
We study environments in which agents may borrow sequentially from more than one lender. Although debt is prioritized, additional lending imposes an externality on prior debt because, with moral hazard, the probability of repayment of prior loans decreases. Equilibrium interest rates are higher than they would be if borrowers could commit to borrow from at most one bank. Even though the loan terms are less favorable than they would be under commitment, the indebtedness of borrowers is greater. Further, additional lending causes the probability of default to increase. The results apply to markets for consumer, corporate, and international debt.
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Citations
Cited by
Default and the Maturity Structure in Sovereign Bonds
Arellano, C., & Ramanarayanan, A. (2012) · Journal of Political Economy · doi:10.1086/666589 · Cited by 428
BRUNNERMEIER, M. K., & OEHMKE, M. (2013) · The Journal of Finance · doi:10.1111/jofi.12005 · Cited by 414
Determinants of the Consumer Bankruptcy Decision
Domowitz, I., & Sartain, R. L. (1999) · The Journal of Finance · doi:10.1111/0022-1082.00110 · Cited by 299
Household Debt: Facts, Puzzles, Theories, and Policies
Zinman, J. (2015) · Annual Review of Economics · doi:10.1146/annurev-economics-080614-115640 · Cited by 165
Metadata
- Authors
- Bizer, D. S., & DeMarzo, P. M.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1992-02
- Volume
- 100
- Issue
- 1
- Pages
- 41-61
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W4254192478
- Cited by
- 177
- References
- 0
- FWCI
- 2.65
- Type
- journal article
- Language
- en
- Open access
- closed
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- Bizer, D. S., & DeMarzo, P. M. (1992). Sequential Banking. Journal of Political Economy. https://doi.org/10.1086/261806
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
