The optimal credit-risk decision mechanism under the non-equal collateral value

In this paper, we assume there are two types of borrowers in society: one is high-risk type and the other is low-risk type. We use the model in to study CRDM when they provide the non-equal collateral value for bank under imperfect information. We analyse and discuss the distinguishing methods to the risk under the non-equal collateral value. According to the different choices of the borrowers between interest rate and collateral requirements, the bank can distinguish risk sizes of their investment projects. The conclusions are that, under the non-equal collateral value, low-risk borrowers choose contracts with low interest rate and high collateral requirements whereas high-risk borrowers choose contracts with high interest rate and low collateral requirements. It shows that the bank can distinguish risk sizes of the borrowers´ investment projects and reveal their private information. Therefore, the risky investors can be distinguished thoroughly in equilibrium credit market when the bank uses both interest rate and collateral requirements as means to distinguish risk.