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Flight to Quality o+L1964r to Captivity? Information and Credit Allocation

  • Giovanni Dell'Ariccia
  • Robert Marquez

Superior information exchanged over the course of lending relationships generates bank-client specificities to the extent that such information cannot be communicated credibly to outsiders. Consequently, banks obtain higher profits from more captured borrowers than from borrowers with financing alternatives. We refer to this as a “flight to captivity” effect. Negative shocks, associated with monetary contractions or foreign entry, cause a reallocation of bank credit away from more transparent borrowers and toward more opaque, more captured borrowers. The paper applies these ideas to the analysis of bank behavior in transition economies after financial liberalization and monetary policy contractions.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/20.

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Length: 25
Date of creation: 01 Feb 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/20
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