Allen, Franklin; Carletti, Elena; Marquez, Robert - In: Proceedings (2005) May, pp. 121-123
creating a market-based incentive for banks to hold capital that stems purely from the asset side of the bank’s balance sheet …. Borrowers can also provide a bank with incentives to monitor by allowing the bank to reap some of the benefits from the loan …, which accrue only if the loan is in fact paid off. Since borrowers do not fully internalize the costs of capital to the bank …