The Effect of Bank Competition on the Bank's Incentive to Collateralize
It has been argued that competing banks make inefficiently frequent use of collateralization in situations where they are better able to evaluate a project's risk than entrepreneurs. We study the bank's choice between screening and collateralization in a model where banks do not have this superior screening skill. In particular, we study the effect of bank competition on this choice. We find that competing banks use collateral less often than a monopolistic bank because competition will intensify if both banks collateralize. Moreover, bank competition is welfare improving if collateralization is rather costly.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.vwl.uni-muenchen.de
More information through EDIRC
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.:
- Inderst, Roman & Mueller, Holger M, 2006.
"A Lender-Based Theory of Collateral,"
CEPR Discussion Papers
5695, C.E.P.R. Discussion Papers.
- Manove, M. & Padilla, A.J., 1997.
"Banking (Conservatively) with Optimists,"
9718, Centro de Estudios Monetarios Y Financieros-.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- Monika Schnitzer, 1999.
"On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies,"
Journal of Institutional and Theoretical Economics (JITE),
Mohr Siebeck, Tübingen, vol. 155(1), pages 22-, March.
- Schnitzer, Monika, 1999. "On the role of bank competition for corporate finance and corporate control in transition economies," Munich Reprints in Economics 19899, University of Munich, Department of Economics.
- Schnitzer, Monika, 1998. "On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies," CEPR Discussion Papers 2013, C.E.P.R. Discussion Papers.
- Schnitzer, Monika, 1999. "On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies," Munich Reprints in Economics 19889, University of Munich, Department of Economics.
- Giovanni Dell'Ariccia & Robert Marquez, 2006.
"Lending Booms and Lending Standards,"
Journal of Finance,
American Finance Association, vol. 61(5), pages 2511-2546, October.
- Brian Wu & Anne Marie Knott, 2006. "Entrepreneurial Risk and Market Entry," Management Science, INFORMS, vol. 52(9), pages 1315-1330, September.
- Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
- Mitchell Berlin & Alexander W. Butler, 2002. "Collateral and competition," Working Papers 02-22, Federal Reserve Bank of Philadelphia.
- Schnitzer, Monika, 1998. "Bank Competition and Enterprise restructuring in Transition Economies," CEPR Discussion Papers 2045, C.E.P.R. Discussion Papers.
- Sengupta, Rajdeep, 2007.
"Foreign entry and bank competition,"
Journal of Financial Economics,
Elsevier, vol. 84(2), pages 502-528, May.
- Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
- Giovanni Dell'Ariccia & Ezra Friedman & Robert Marquez, 1999. "Adverse Selection as a Barrier to Entry in the Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 515-534, Autumn.
- Alberto ZAZZARO, 2003.
"Should Courts Enforce Credit Contracts Strictly ?,"
181, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Nicola Cetorelli, 2001. "Competition among banks: good or bad?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 38-48.
- Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
- Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-44, Winter.
When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:2007. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.