kaal:claim:3405660-026

Banks can restrain borrower risk taking because they can credibly threaten to cut off future lending, a disciplinary tool other intermediaries lack.

Source quote, verbatim

They have advantages in preventing risk taking by borrowers because they can use the threat of cutting off future lending to improve a borrower's behavior.

From

Kaal, Indirect Regulation of Hedge Funds (2019), IV.1 Fund Regulation via Banking Supervision, p. 20
https://ssrn.com/abstract=3405660 · source PDF

Cite as

Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

Holds when

ongoing lending relationship in which future credit matters to the borrower

Classification

mechanismsupport: arguedsystemic-riskrisk-and-incentivesdefi

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