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Information Reusability, Competition and Bank Asset Quality Author info | Abstract | Publisher info | Download info | Related research | Statistics Yuk-Shee Chan (Northwestern University)
Stuart I. Greenbaum (Washington University in St. Louis)
Anjan V. Thakor (Washington University in St. Louis)
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The paper explains the recent decline in bank asset quality using the notion of information reusability. Banks are viewed as information processors; they exist because of their advantage in extracting the surplus associated with the reusability of borrower-specific information. It is shown that a bank's incentive to screen loan applicants, and hence maintain the quality of its assets, depends on the surplus this screening can produce, which in turn depends on information reusability. Two recent changes in banks' operating environment are increased competition and greater temporal volatility in borrower credit risks. The former has directly reduced banks' informational surplus while the latter has impaired information reusability. Hence screening expenditures have been reduced and the diminution of screening has lowered the quality of bank assets. It is also shown that an increase in deposit insurance premia has an effect similar to that of narrowing interest spreads and therefore will result in reduced asset screening and impaired asset quality.
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Paper provided by EconWPA in its series Finance with number
0411049.
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Length: 11 pages
Date of creation: 30 Nov 2004Date of revision:
Handle: RePEc:wpa:wuwpfi:0411049Note: Type of Document - pdf; pages: 11Contact details of provider: Web page: http://129.3.20.41
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Article Chan, Yuk-Shee & Greenbaum, Stuart I. & Thakor, Anjan V., 1986.
"Information reusability, competition and bank asset quality ,"
Journal of Banking & Finance ,
Elsevier, vol. 10(2), pages 243-253, June.
[Downloadable!] (restricted) Find related papers by JEL classification: G - Financial Economics
This paper has been announced in the following NEP Reports :
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.: Millon, Marcia H & Thakor, Anjan V, 1985.
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Other versions: Chan, Yuk-Shee, 1983.
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Other versions: Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 1985.
"The deterioration of bank asset quality ,"
Proceedings ,
Federal Reserve Bank of Chicago, pages 268-284.
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references Cited by : (explanations , 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.)
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