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Endogenous Relationship Banking to Alleviate Excessive Screening in Transaction Banking

Author

Listed:
  • Ogura, Yoshiaki
  • 小倉, 義明
  • オグラ, ヨシアキ

Abstract

This paper analyzes how learning a borrower's 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.

Suggested Citation

  • Ogura, Yoshiaki & 小倉, 義明 & オグラ, ヨシアキ, 2006. "Endogenous Relationship Banking to Alleviate Excessive Screening in Transaction Banking," Discussion Paper Series a487, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:a487
    as

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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13457/DP487.pdf
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    References listed on IDEAS

    as
    1. Ernst-Ludwig von Thadden, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 557-575.
    2. Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
    3. Paul Klemperer (ed.), 2000. "The Economic Theory of Auctions," Books, Edward Elgar Publishing, volume 0, number 1669.
    4. Giovanni Dell'Ariccia & Ezra Friedman & Robert Marquez, 1999. "Adverse Selection as a Barrier to Entry in the Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 515-534, Autumn.
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    Cited by:

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    More about this item

    Keywords

    relationship banking; informational externality; interbank competition; commonvalue; repeated auction;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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