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Endogenous Relationship Banking to Alleviate Excessive Screening Transaction Banking

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Author Info
Yoshiaki Ogura
Abstract

This paper analyzes how learning a borrowerfs creditworthiness, from past lending decision by a rival bank that is publicly observable through private or public credit reporting systems, affects the performance of subsequent lending competitions. Our analysis of twicerepeated lending competitions demonstrates that such ex post information sharing causes inefficient and excessive screening of new borrowers when banks undertake transaction banking since each bank expects future disadvantages to result from the information revelation. Relationship banking arises endogenously as a defense against such anticipated disadvantage, and improves the economic efficiency by alleviating the excessive screening.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Discussion Paper Series with number a487.

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Date of creation: Dec 2006
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Handle: RePEc:hit:hituec:a487

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Related research
Keywords: relationship banking; informational externality; interbank competition; commonvalue repeated auction;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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