The purpose of this paper is to examine the consequences of interbank competition and bank-capital market competition on the portfolio choices of banks and the welfare of borrowers in a regulatory environment of (de facto) complete deposit insurance. Our focus is on an industry characterized by 'relationship banking', i.e. a setting involving repeated, bilateral credit transactions between banks and borrowers. A key feature of relationship banking is the intertemporal accumulation of proprietary borrower-specific information in the hands of the bank, and the consequent creation of informational rents. To the extent that these rents are shared by the bank and the borrower, both parties see a value in continuing their relationship. The desire to protect such relationships affects the bank's asset portfolio choice.
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Paper provided by EconWPA in its series Finance with number
0411046.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
V.V. Chari & Ravi Jagannathan, 1984.
"Banking Panics,"
Discussion Papers
618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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