A simple enquiry on heterogeneous lending rates and lending behaviour

tma = maximum oblservable alternative interest rate for the loans facilities of each size cathegory of
banks for all the size cathegories of overdrafts, in each geographic area in each year..

tmi = minimum oblservable alternative interest rate for the customers demanding loans facilities of a
given size from all the possible alternative size cathegories of banks in each geographic area, in each year.

Each observation unit is the credit (and interest rates) from each size class of lenders to each loans
size class, in each geographic area, for each quarter. There are 3 size classes of lenders 3 loan size classes,
6 geographic areas, 33 quarters, which makes it 54 longitudinal units observed fo 33 periods. The
variable “so_u” is a proxy for the risk specific to each specific class of borrower from each size class of
lender, in each geographic area in a given year and quarter. Therefore its level (and possibly its increase)
expected to be positively correlated with the spread “ta_d”, since the lending rate must include a risk
premium. The variable “tdif” is a proxy for the competitive context. A higher spread between the
maximum lending rate available to the relevant size class of lenders and the minimum lending rate
available to the relevant loan size class reflects a situation of higher competition among banks and larger
possibilities of choice for the borrowers. The rationale for using this variable instead of only using more
conventional “structural” variables or size variables to capture the market power of the counterparts lies in
the fact that the competitive context might change much more quickly than structural variables,
sometimes under the effect of strategies performed by medium-sized and even small firms and banks.
This variable is then expected to be negatively correlated with the spread “ta_d”. The variable “isco”
represent the general expectations of the economy: if one accepted the assumption of rational expectations
it should be common to all the agents (since, in particular, this variable is based on publically available
interviews on entrepreneurs). It constitutes again an element of general risk evaluation, at a
macroeconomic level, however it turns out to be totally non significant in the equation for “ta_d”. On the
basis of all the considerations made before, the following general unrestricted model has been estimated:

4                          4                          4

^ta_^dijt=^CONST+∑αt-k^ta_^dijt-k^+∑βt-k^tdif ijt-k^+Σγt-k^so_^uijt-k ⁺

k=1                  k=0                   k=0

⁴

+ Σ φt-k iscot-k +
^k=1

+ dummies for the loan sizes +

+ dummies for banks size +

+ dummies for the geographic area +

+ white noise                                              (1)

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