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Borrower Poaching and Information Display in Credit Markets

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  • Bouckaert, J.M.C.
  • Degryse, H.A.

    (Tilburg University, Center for Economic Research)

Abstract

The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiatives to stimulate financial integration.These initiatives allow new entrants to "poach" the incumbents' clients by offering them attractive loan offers.We show that these deregulations may be insuficient since asymmetric information seriously hampers the integration of credit markets.This asymmetry stems from the informational advantage incumbent banks have about their current clients vis-a-vis potential entrants.More-over, banks may strategically display some information hindering entry when asymmetric information is moderate.We also show that voluntary information sharing emerges only when asymmetric information is low.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-41.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200141

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Keywords: credit markets; economic integration; information; banking; competition; access to market;

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References

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  1. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CSEF Working Papers 22, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Gehrig, Thomas & Stenbacka, Rune, 2001. "Information Sharing in Banking: A Collusive Device?," CEPR Discussion Papers 2911, C.E.P.R. Discussion Papers.
  3. Sherril Shaffer, 1997. "The winner's curse in banking," Working Papers 97-25, Federal Reserve Bank of Philadelphia.
  4. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 901-926.
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  7. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
  8. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers 579, C.E.P.R. Discussion Papers.
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  10. Neven, Damien J, 1992. "Regulatory Reform in the European Community," American Economic Review, American Economic Association, vol. 82(2), pages 98-103, May.
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  13. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  14. J. Miguel Villas-Boas, 1999. "Dynamic Competition with Customer Recognition," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 604-631, Winter.
  15. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
  16. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  17. Greg Shaffer & Z. John Zhang, 2000. "Pay to Switch or Pay to Stay: Preference-Based Price Discrimination in Markets with Switching Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 397-424, 06.
  18. Vives, Xavier, 1990. "Banking Competition and European Integration," CEPR Discussion Papers 373, C.E.P.R. Discussion Papers.
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  20. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
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Citations

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Cited by:
  1. Mannonen, Pekka, 2002. "The Strategic Response of Banks to an Exogenous Positive Information Shock in the Credit Markets," Discussion Papers 830, The Research Institute of the Finnish Economy.
  2. Hans Degryse & Steven Ongena, 2002. "Bank-Firm Relationships and International Banking Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 401-417.
  3. Degryse, H.A. & Ongena, S., 2002. "Distance, Lending Relationships and Competition," Discussion Paper 2002-16, Tilburg University, Center for Economic Research.
  4. Verónica Balzarotti & Alejandra Anastasi, 2013. "Does Competition for Novice Borrowers Hurt Access to Finance? An Analysis in a Context of High Risk and Low Outreach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(69), pages 101-149, December.

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