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Sharing Default Information as a Borrower Discipline Device

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Author Info
A Jorge Padilla
Marco Pagano

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Abstract

Creditors often share their information about their customers' credit record, directly or via information brokers such as credit bureaus and rating agencies. Besides helping them to spot bad risks, this informational exchange acts as a disciplinary device. If creditors are known to exchange data about defaults, borrowers must consider that default on a current lender would disrupt their credit rating with all the other lenders. This disciplinary effect of information sharing can reduce the average default rate and increase the efficiency of the credit market, and it invariably sharpens competition between banks. But more detailed and extensive information sharing is not necessarily better: we show that the efficiency gains obtained obtained by pooling only data about past defaults can exceed those entailed by sharing all the information possesed by lenders.

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Publisher Info
Paper provided by European Science Foundation Network in Financial Markets, c/o C.E.P.R, 53--56 Great Sutton Street, London EC1V 0DG in its series CEPR Financial Markets Paper with number 0043.

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Date of creation: Jan 1994
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Availability: in print
Handle: RePEc:cpr:ceprfm:0043

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Related research
Keywords: Information Sharing; Credit Market; Incentives;

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  1. Thomas Gehrig & Rune Stenbacka, 2000. "Information Sharing in Banking: A Collusive Device?," Econometric Society World Congress 2000 Contributed Papers 1837, Econometric Society. [Downloadable!]
    Other versions:
  2. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: The European Experience," CSEF Working Papers 35, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  3. Semenova, Maria, 2006. "Information sharing in credit markets: incentives for incorrect information reporting," MPRA Paper 359, University Library of Munich, Germany. [Downloadable!]
  4. Eric Van Tassel, 2009. "Sharing credit information under endogenous costs," Working Papers 09004, Department of Economics, College of Business, Florida Atlantic University. [Downloadable!]
  5. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing in Credit Markets: International Evidence," RES Working Papers 3069, Inter-American Development Bank, Research Department. [Downloadable!]
  6. José L. Negrin, 2004. "The Importance of Borrowers’ History on Credit Behavior: The Mexican Experience," Econometric Society 2004 Latin American Meetings 226, Econometric Society. [Downloadable!]
  7. Jappelli, Tullio & Pagano, Marco, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CEPR Discussion Papers 2184, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Bouckaert, Jan & Degryse Hans, 2002. "Softening Competition by Enhancing Entry: An Example from the Banking Industry," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Mermelstein, David A., 2006. "Defaults en carteras hipotecarias, macroeconomía y arreglos institucionales: Más allá de los modelos de Credit-Scoring tradicionales
    [Mortgage defaults, macroeconomics, and institutional arrange    ," MPRA Paper 7535, University Library of Munich, Germany. [Downloadable!]
  10. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: A Survey," CSEF Working Papers 36, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  11. Stéphane Straub & Horacio Sosa, 1999. "Institutional Arrangements to Ensure Willingness to Repay in Financial Markets: A Case Study of Paraguay," RES Working Papers 3062, Inter-American Development Bank, Research Department. [Downloadable!]
  12. Ronel Elul & Piero Gottardi, 2008. "Bankruptcy: Is it enough to Forgive or must we also Forget?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  13. Bennardo, Alberto & Pagano, Marco & Piccolo, Salvatore, 2009. "Multiple-Bank Lending, Creditor Rights and Information Sharing," CEPR Discussion Papers 7186, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2007. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," CEPR Discussion Papers 6313, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Claude Fluet & Paolo G. Garella, 2007. "Relying on the Information of Others: Debt Rescheduling with Multiple Lenders," Development Working Papers 232, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
    Other versions:
  16. Ángel Hernando-Veciana, 1998. "Efectos del análisis crediticio sobre los incentivos empresariales," Investigaciones Economicas, Fundación SEPI, vol. 22(3), pages 361-392, September. [Downloadable!]
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