Credit Rationing, Implicit Contracts, Risk Aversion and the Variability of Interest Rates

Recent work on credit rationing has stressed the importance of asymmetric information. This paper considers an alternative explanation based on banks and customers dealing with each other over a planning horizon in which the future is uncertain. Risk averse banks and customers have an incentive to enter into an implicit contract in which interest rate variations are dampened but rationing can occur. Attention is paid to movements in the interest rate which are shown to depend on the nature of the insurance provided by banks and the specification of the cost function associated with processing loans. © 1992.