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Does information sharing reduce the role of collateral as a screening device?

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Author Info

  • Artashes Karapetyan

    ()
    (Norges Bank (Central Bank of Norway))

  • Bogdan Stacescu

    ()
    (BI Norwegian Business School,)

Abstract

Information sharing and collateral reduce adverse selection costs, but are costly for lenders. When a bank learns more about the types of its rival's borrowers through information sharing (e.g., credit bureaus), it might seem that this information should substitute the role of collateral in screening their types. We instead show that information sharing may increase, rather than decrease, the role of collateral, which can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. We extend to show that ex ante screening can substitute both collateral and information sharing.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2012/WP-201219/
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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2012/19.

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Length: 24 pages
Date of creation: 18 Dec 2012
Date of revision:
Handle: RePEc:bno:worpap:2012_19

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Keywords: Bank competition; Information sharing; Collateral;

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