Lending decisions with limits on capital available: The polygamous marriage problem

Abstract

In order to stimulate or subdue the economy, banking regulators have sought to impose caps or floors on individual bank's lending to certain types of borrowers. This paper shows that the resultant decision problem for a bank of which potential borrower to accept is a variant of the marriage/secretary problem where one can accept several applicants. The paper solves the decision problem using dynamic programming. We give results on the form of the optimal lending problem and counter examples to further "reasonable" conjectures which do not hold in the general case. By solving numerical examples we show the potential loss of profit and the inconsistency in the lending decision that are caused by introducing floors and caps on lending. The paper also describes some other situations where the same decision occurs.

Online voluntary mentoring: Optimising the assignment of students and mentors

“…In our application of allocating mentors to students we can observe a dynamic nature, so the literature on online matching is also related. Natural applications for online matching with preferences are deceased organ allocation [25], [3], allocation in social housing [23], [14], electric vehicle charging [20], or lending decisions [28].…”

Banks Business Models, Risk Management Systems And Small And Medium Enterprises Financing Proclivity In Zimbabwe

“…In this context, smaller banks are generally willing to consider financing small firms than relatively large banks (Canales and Nanda, 2012). In many countries, monetary authorities have sought to encourage banks to lend to SMEs as a way of promoting the sector's growth (So, Thomas & Huang, 2016). Yet, asymmetric information, inadequate collateral and inexperienced managers are some of the challenges that restrict SMEs access to bank financing (Shaban, Duygun and Fry, 2016).…”