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Multiple-Bank Lending, Creditor Rights and Information Sharing

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Author Info
Alberto Bennardo () (Università di Salerno, CSEF, and CEPR)
Marco Pagano () (Università di Napoli Federico II, CSEF, EIEF and CEPR)
Salvatore Piccolo () (Università di Napoli Federico II, CSEF, and TSE)

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Abstract

When a customer can borrow from several competing banks, lending by each of them raises the customer’s default risk. If creditor rights are poorly protected, this contractual externality can generate equilibria with rationing, as well as others with excessive lending or non-competitive rates. Information sharing among banks about clients’ past indebtedness reduces interest and default rates, improves entrepreneurs’ access to credit (unless the value of collateral is very uncertain) and may act as a substitute for creditor rights protection. If information sharing also allows banks to monitor their clients’ subsequent indebtedness, the credit market may achieve full efficiency.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 211.

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Date of creation: 31 Dec 2008
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Handle: RePEc:sef:csefwp:211

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Related research
Keywords: information sharing; multiple banks; creditor rights; seniority; non-exclusivity;

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Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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  1. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer. [Downloadable!] (restricted)
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    Other versions:
  3. Tullio Jappelli & Marco Pagano, 2005. "Role and Effects of Credit Information Sharing," CSEF Working Papers 136, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  7. Farinha, Luisa A. & Santos, Joao A. C., 2002. "Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications," Journal of Financial Intermediation, Elsevier, vol. 11(2), pages 124-151, April. [Downloadable!] (restricted)
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  8. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 217-51, February.
    Other versions:
  9. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(1), pages 205-36.
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  10. Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January. [Downloadable!] (restricted)
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    Other versions:
  12. Calzolari, Giacomo & Pavan, Alessandro, 2006. "On the optimality of privacy in sequential contracting," Journal of Economic Theory, Elsevier, vol. 130(1), pages 168-204, September. [Downloadable!] (restricted)
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  13. repec:bep:thecon:v:6:y:2006:i:1:p:1253-1253 is not listed on IDEAS
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  14. Philip T. Hoffman & Gilles Postel-Vinay & Jean-Laurent Rosenthal, 1998. "What do Notaries do?. Overcoming Asymmetric Information in Financial Markets: The Case of Paris, 1751," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(3), pages 499-, September.
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  15. Kallberg, Jarl G. & Udell, Gregory F., 2003. "The value of private sector business credit information sharing: The US case," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 449-469, March. [Downloadable!] (restricted)
  16. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December. [Downloadable!] (restricted)
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  17. repec:bep:theadv:v:3:y:2003:i:1:p:1037-1037 is not listed on IDEAS
  18. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February. [Downloadable!] (restricted)
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  20. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
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  23. Detragiache, Enrica & Garella, Paolo & Guiso, Luigi, 1997. "Multiple Versus Single Banking Relationships," CEPR Discussion Papers 1649, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  26. 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. [Downloadable!]
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  27. Martimort, David & Stole, Lars, 1999. "Contractual Externalities and Common Agency Equilibria," IDEI Working Papers 110, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
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