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Flight to Quality o+L1964r to Captivity? Information and Credit Allocation

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Author Info

  • Giovanni Dell'Ariccia
  • Robert Marquez

Abstract

Superior information exchanged over the course of lending relationships generates bank-client specificities to the extent that such information cannot be communicated credibly to outsiders. Consequently, banks obtain higher profits from more captured borrowers than from borrowers with financing alternatives. We refer to this as a “flight to captivity” effect. Negative shocks, associated with monetary contractions or foreign entry, cause a reallocation of bank credit away from more transparent borrowers and toward more opaque, more captured borrowers. The paper applies these ideas to the analysis of bank behavior in transition economies after financial liberalization and monetary policy contractions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/20.

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Length: 25
Date of creation: 01 Feb 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/20

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Related research

Keywords: Banking; Bank credit; Economic models; probability; bank lending; equation; banking sector; predictions; bank loans; banking system; bank financing; bank entry; banking crisis; banking industry; banks ? balance sheets; transmission of monetary policy; bank capital; banking information; bank balance sheets; banking crises; bank behavior; statistics; bank customers; banking markets; bank credit allocation; banks ? liabilities; banking sectors; bank reform; integral; econometrics; bank consolidation; banking market; bank profitability; bank borrowing; bank profits; bank portfolio; correlation; probabilities;

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Cited by:
  1. Berger, Allen N. & Klapper, Leora F. & Udell, Gregory F., 2001. "The ability of banks to lend to informationally opaque small businesses," Policy Research Working Paper Series 2656, The World Bank.
  2. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banche, territorio e sviluppo," Moneta e Credito, Economia civile, Economia civile, vol. 56(221), pages 3-43.
  3. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banks, regions and development," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 56(224), pages 23-55.
  4. Wako Watanabe, 2004. "Prudential Regulation, the Credit Crunch" and the Ineffectiveness of Monetary Policy: Evidence from Japan," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0617, Institute of Social and Economic Research, Osaka University.

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