Journal of Finance Vol. 77 No. 6 2022
Loan Terms and Collateral: Evidence from the Bilateral Repo Market
Abstract
We study secured lending contracts using a proprietary, loan‐level database of bilateral repurchase agreements containing groups of simultaneous loans backed by multiple tranches within a securitization. We show that lower‐quality loans (i.e., loans backed by lower‐rated collateral) have higher margins and spreads. We calibrate a model using collateral asset prices and find that lower‐quality loans are riskier despite the higher margins, yet cheaper for the borrower. This finding is consistent with a combination of lender optimism and reaching for yield. We also show that lower‐quality loans have longer maturity, consistent with models of rollover concerns with asymmetric information.
- DOI
- 10.1111/jofi.13184
- Volume
- 77
- Issue
- 6
- Pages
- 2997-3036
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref