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Learning by Lending, Competition, and Screening Incentives in the Banking Industry

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  • Giovanni Dell
  • Ariccia#x2019
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    Abstract

    This paper shows that banks may have an incentive to reduce screening when the proportion of untested borrowers on the market increases, leading to a deterioration of their portfolios and a contraction of their profits. The paper addresses the issue in the context of a simple model where banks compete solely on screening and in a more complex model where banks compete by offering borrowers a menu of contracts. The results have policy implications with regard to financial liberalization, lending booms, and banking crises, as those occurred at different times in many emerging markets.

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    File URL: http://fic.wharton.upenn.edu/fic/papers/00/0010.pdf
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    Bibliographic Info

    Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 00-10.

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    Date of creation: Feb 2000
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    Handle: RePEc:wop:pennin:00-10

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    Cited by:
    1. Cetorelli, Nicola, 2004. "Real Effects of Bank Competition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 543-58, June.
    2. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Working Papers 04-24, Bank of Canada.
    3. Nicola Cetorelli, 2001. "Does bank concentration lead to concentration in industrial sectors?," Working Paper Series WP-01-01, Federal Reserve Bank of Chicago.
    4. Agostino, Mariarosaria & Gagliardi, Francesca & Trivieri, Francesco, 2010. "Credit market structure and bank screening: An indirect test on Italian data," Review of Financial Economics, Elsevier, vol. 19(4), pages 151-160, October.
    5. Giannetti, Caterina & Jentzsch, Nicola, 2013. "Credit reporting, financial intermediation and identification systems: International evidence," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 60-80.
    6. Cetorelli, Nicola & Peretto, Pietro F., 2000. "Oligopoly Banking and Capital Accumulation," Working Papers 00-19, Duke University, Department of Economics.
    7. Deidda, Luca & Fattouh, Bassam, 2005. "Concentration In The Banking Industry And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 9(02), pages 198-219, April.
    8. Nicola Cetorelli, 2001. "Competition among banks: good or bad?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 38-48.
    9. Xavier Freixas, 2005. "Deconstructing relationship banking," Investigaciones Economicas, FundaciĆ³n SEPI, vol. 29(1), pages 3-31, January.

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