Banks and loan sales Marketing nonmarketable assets

Gary B. Gorton, George G. Pennacchi

Research output: Contribution to journalArticlepeer-review


Theories of financial intermediation predict that bank loans should not be marketable because of moral hazard problems; banks will not conduct credit risk analysis or monitor borrowers if they are not at risk for failing to perform these services. Throughout most of history, bank loans have not, in fact, been marketable. Yet, by the end of the 1980's the amount of commercial and industrial loan sales outstanding had grown to over $250 billion from trivial amounts at the beginning of the decade. To explain the opening of this loan sales market, we present a model of incentive-compatible loan sales that allows for implicit contractual features between loan sellers and loan buyers. We then test for the presence of these features using a sample of over 800 recent loan sales.

Original languageEnglish (US)
Pages (from-to)389-411
Number of pages23
JournalJournal of Monetary Economics
Issue number3
StatePublished - Jun 1995


  • Banking
  • Loan sales

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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