Liquidity, Collateral Values, And Credit Allocation Of Bank

Private enterprise’s loaning is a world widespread problem. In our country, problem isaggravated by the background of socialism and the circumstances that bank play adominated role in lending. The research for the financing problem of private enterprisesand small and medium-sized enterprise has never stopped. But most domestic studies stayon the description and the abstract interpretation of the problem and little tries to moldingthe problem.This paper stress that there was a feedback loop between collateral values，lending，and liquidity in the corporate sector and hinging on it, this paper develops a generalequilibrium rational expectation model which provides a framework for firm borrowing.We show that initial liquidity and collateral values are the key determinants of debtcapacity. In our model, initial difference will be forced to different equilibrium. We alsoanalyze the effect of monetary policy on bank lending behavior through the creditchannel of monetary policy transmission. Our model predict that if initial collateralvalues and aggregate corporate liquidity are low, a credit trap will arise, in which liquiditygets into the banking system but very little lending is taking place as a result. Among these,the analysis shows how quantitative easing and fiscal policy acting in conjunction withmonetary policy may be useful in increasing bank lending.Lastly, based on the theoretical research, according to the analysis, the paper offerspotential solution which can use to improve the loans of private enterprises. The policyimplications from the model suggest that reducing initial gap between state-ownedeconomy departments and the private economic sector was the crux.