IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The Effect of Bank Competition on the Bank's Incentive to Collateralize

  • Hainz, Christa

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 2007.

in new window

Date of creation: Jul 2007
Date of revision:
Handle: RePEc:lmu:muenec:2007
Contact details of provider: Postal: Ludwigstr. 28, 80539 Munich, Germany
Phone: +49-(0)89-2180-3405
Fax: +49-(0)89-2180-3510
Web page:

More information through EDIRC

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.:

as in new window
  1. Inderst, Roman & Mueller, Holger M, 2006. "A Lender-Based Theory of Collateral," CEPR Discussion Papers 5695, C.E.P.R. Discussion Papers.
  2. Manove, M. & Padilla, A.J., 1997. "Banking (Conservatively) with Optimists," Papers 9718, Centro de Estudios Monetarios Y Financieros-.
  3. 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.
  4. 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.
  5. Giovanni Dell'Ariccia & Robert Marquez, 2006. "Lending Booms and Lending Standards," Journal of Finance, American Finance Association, vol. 61(5), pages 2511-2546, October.
  6. Brian Wu & Anne Marie Knott, 2006. "Entrepreneurial Risk and Market Entry," Management Science, INFORMS, vol. 52(9), pages 1315-1330, September.
  7. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
  8. Mitchell Berlin & Alexander W. Butler, 2002. "Collateral and competition," Working Papers 02-22, Federal Reserve Bank of Philadelphia.
  9. Schnitzer, Monika, 1998. "Bank Competition and Enterprise restructuring in Transition Economies," CEPR Discussion Papers 2045, C.E.P.R. Discussion Papers.
  10. Sengupta, Rajdeep, 2007. "Foreign entry and bank competition," Journal of Financial Economics, Elsevier, vol. 84(2), pages 502-528, May.
  11. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
  12. 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.
  13. Alberto ZAZZARO, 2003. "Should Courts Enforce Credit Contracts Strictly ?," Working Papers 181, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  14. Nicola Cetorelli, 2001. "Competition among banks: good or bad?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 38-48.
  15. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
  16. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.