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Information Production, Banking Industry Structure and Credit Allocation

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  • G. Chiesa

Abstract

Does the removal of intra-state entry barriers increase welfare? Will all banks survive? Will it lead to a consolidation of the banking industry? The experience of credit market deregulation has not been always successful. Credit market liberalisation, via the removal of entry barriers, of limitations of activity and of markets for funding is generally recognised at the origin of banking crises like the American Savings & Loans, the Scandinavian countries’ banking crises at the end of the 80’s, the Japanese crises not yet resolved and more recently and on a large scale the East-Asian countries. However there are doubts about whether these problems arose because of liberalization per se or rather because of failure of prudential regulation in disciplining banks whose lenders were protected by deposit insurance and State guarantees. Financial markets integration in Europe is still at too an early stage to evaluate, but certainly the very clear process that has emerged is a consolidation of the banking system. Moreover, such a process appears to take place worldwide and somehow be the response to anticipation of future competition. Berger, Kashyap and Scalise (1995) documents a striking amount of consolidation in the American banking industry over the 1979-94 period and attribute this consolidation to the relaxation of intra-state entry barriers, moreover consolidation was favoured by regulators through the easing of the process for approving mergers. footnote Does a concentrated banking industry dominate a fragmented one? This is the question this paper seeks to address.

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  • G. Chiesa, 1998. "Information Production, Banking Industry Structure and Credit Allocation," Working Papers 325, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:325
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    References listed on IDEAS

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    1. Gehrig, Thomas, 1998. "Screening, cross-border banking, and the allocation of credit," Research in Economics, Elsevier, vol. 52(4), pages 387-407, December.
    2. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
    3. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    4. Chiesa, Gabriella, 2001. "Incentive-Based Lending Capacity, Competition and Regulation in Banking," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 28-53, January.
    5. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    6. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    7. Thomas Gehrig, 1996. "Market Structure, Monitoring and Capital Adequacy Regulation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 685-702, December.
    8. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    9. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-452, March.
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    Cited by:

    1. Chiesa, Gabriella, 2008. "Optimal credit risk transfer, monitored finance, and banks," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 464-477, October.
    2. Davide IACOVONI & Alberto ZAZZARO, 2000. "Legal System Efficiency, Information Production, and Technological Choice: A Banking Model," Working Papers 129, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banche, territorio e sviluppo," Moneta e Credito, Economia civile, vol. 56(221), pages 3-43.
    4. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banks, regions and development," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 56(224), pages 23-55.
    5. repec:spr:epolin:v:44:y:2017:i:2:d:10.1007_s40812-016-0033-x is not listed on IDEAS
    6. Holmberg, Ulf, 2012. "The Credit Market and the Determinants of Credit Crunches: An Agent Based Modeling Approach," Umeå Economic Studies 836, Umeå University, Department of Economics.
    7. Hyytinen, Ari, 2003. "Information production and lending market competition," Journal of Economics and Business, Elsevier, vol. 55(3), pages 233-253.
    8. Hyytinen, Ari, 2001. "Information Production, Banking Competition and the Market Structure of the Banking Industry," Discussion Papers 749, The Research Institute of the Finnish Economy.
    9. 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.

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