Credit Standards and Tight Money

A study of the use of negotiable certificates of deposits by large US banks to satisfy liquidity, profitability, and soundness needs

“…The basic model used in this study was developed by Dudley Luckett [20] to provide a theoretical structure for the more stringent credit standards adopted by banks during periods of tight money, Carl VanderWilt [28] and Steve Steib [26] have also used this model to explain respec tively determinants of member bank borrowing from the Federal Reserve and By assuming that the cost of servicing demand deposits is equal to the service charge on demand deposits (i.e., 6^^ = ôg) profits can be expressed as :…”

Bank response to tight money: a case study

“…A bank will rely on the interest rate to ration credit only if (2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16)(17) wher e the subscript r indicates rationing by interest rate and R, r ationing by deposit criteria. As indicated above , if the interest rate is used , 2 (dU/dD)r + (dU/d crD)r may be negative due to the loss of customers with large, stable accounts .…”

“…Another characteristic of the customer rela tionship --the creditworthiness of the borrower --is demonstrated to effectuate non -price credit rationing in a model developed by Luckett (14). He argues that r aising credit standards on loans during tight money will allow the bank to expand loans to meet demand without increasing the aggre gate risk exposure of the asset portfolio .…”

“…Since the Samuelson testimony and ABA studies, various theoretical mode l s (22) , (9), (8), (11), (14) describing bank behavior have been advanced to support or reject the credit availability doctrine.…”

An econometric model of conventional mortgage credit flows and the channeled effects of monetary policy

“…With respect to the mortgage credit market, the third channel of monetary policy, credit rationing, suggests that nonprice rationing occurs when the rate of interest on mortgage credit is slow to adjust to the ex cess demand for mortgage credit that may exist as a result of monetary forces (6), (8), and (19). As a result, the credit that is available is rationed on terms other than price considerations.…”