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Sharing credit information under endogenous costs

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  • Eric Van Tassel

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Abstract

In this paper we study a model in which asymmetrically informed banks compete with one another to offer loans to entrepreneurs with risky projects. Banks are given an opportunity to share private credit information about their borrowers. The revealed information impacts both the bank’s repayment revenue as well as its costs, in terms of either the rate paid on debt and insurance, or the risk adjusted capital requirement. In this framework, we study how the interaction of repayment revenue and cost shape individual banks’ incentives to share information and in turn, how this explains the overall degree of information sharing in the economy.

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Bibliographic Info

Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 09004.

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Length: 23 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:fal:wpaper:09004

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Keywords: Information sharing; Bank competition; Market discipline;

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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.
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  3. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
  4. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank supervision and corruption in lending," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2131-2163, November.
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  10. María Soledad Martínez-Peria & Sergio Schmukler, 2002. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174 Central Bank of Chile.
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  14. Martin Brown & Tullio Jappelli & Marco Pagano, 2008. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," Discussion Papers 3_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  15. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers 579, C.E.P.R. Discussion Papers.
  16. Caprio, Gerard & Honohan, Patrick, 2004. "Can the unsophisticated market provide discipline?," Policy Research Working Paper Series 3364, The World Bank.
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  20. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
  21. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
  22. G. G. Garcia, 1999. "Deposit Insurance," IMF Working Papers 99/54, International Monetary Fund.
  23. Mark Flannery, 2001. "The Faces of “Market Discipline”," Journal of Financial Services Research, Springer, vol. 20(2), pages 107-119, October.
  24. Kane, Edward J., 1986. "Appearance and reality in deposit insurance: The case for reform," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 175-188, June.
  25. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  26. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
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