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Multiple-Bank Lending, Creditor Rights and Information Sharing

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Author Info
Bennardo, Alberto
Pagano, Marco
Piccolo, Salvatore

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Abstract

When a customer can borrow from several competing banks, multiple lending raises default risk. If creditor rights are poorly protected, this contractual externality can generate novel equilibria with strategic default and rationing, in addition to equilibria with excessive lending or non-competitive rates. Information sharing among banks about clients' past indebtedness lowers interest and default rates, improves access to credit (unless the value of collateral is very uncertain) and may act as a substitute for creditor rights protection. If information sharing also allows banks to monitor their clients' subsequent indebtedness, the credit market may achieve full efficiency.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7186.

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Date of creation: Feb 2009
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Handle: RePEc:cpr:ceprdp:7186

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Related research
Keywords: creditor rights; information sharing; multiple-bank lending; non-exclusivity; seniority;

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Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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    Other versions:
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  27. MARTIMORT, David & STOLE, Lars, 1999. "Contractual Externalities and Common Agency Equilibria," IDEI Working Papers 110, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
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