Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending
AbstractIn imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-146/IV/DSF49.
Date of creation: 20 Dec 2012
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Banking Competition; Soft Budget Constraint Problem; Moral Hazard;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-BAN-2013-01-07 (Banking)
- NEP-COM-2013-01-07 (Industrial Competition)
- NEP-CTA-2013-01-07 (Contract Theory & Applications)
- NEP-MIC-2013-01-07 (Microeconomics)
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