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Could dishonest banks be disciplined ?

  • Nabi, Mahmoud Sami
  • Ben Souissi, Souraya

Could a credit bureau incite banks to report correct information about their borrowers? We show that banks will choose the incorrect information sharing in the last period to increase their profits. Interestingly, however, it is shown that this strategy is optimal at the second period only if the proportion of successful projects is superior to 50%. In that case the Credit Bureau should enforce a sufficiently high penalty in order to incite banks to share information honestly. The penalty threshold that conditions the efficiency of the credit bureau’s role is endogenously derived.

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File URL: http://mpra.ub.uni-muenchen.de/32010/1/MPRA_paper_32010.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32010.

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Date of creation: May 2011
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Handle: RePEc:pra:mprapa:32010
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  1. Anjan V. Thakor & Richard Callaway, 2004. "Costly Information Production Equilibria in the Bank Credit Market with Applications to Credit Rationing," Finance 0411030, EconWPA.
  2. Semenova, Maria, 2006. "Information sharing in credit markets: incentives for incorrect information reporting," MPRA Paper 359, University Library of Munich, Germany.
  3. repec:fth:inseep:2001-18 is not listed on IDEAS
  4. Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," NBER Working Papers 8928, National Bureau of Economic Research, Inc.
  5. FOUCAULT, Thierry & LESCOURRET, Laurence, 2001. "Information sharing, liquidity and transaction costs in floor-based trading systems," Les Cahiers de Recherche 742, HEC Paris.
  6. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-36.
  7. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
  8. Kenneth P. Brevoort & John D. Wolken, 2008. "Does distance matter in banking?," Finance and Economics Discussion Series 2008-34, Board of Governors of the Federal Reserve System (U.S.).
  9. Powell, Andrew & Mylenko, Nataliya & Miller, Margaret & Majnoni, Giovanni, 2004. "Improving credit information, bank regulation, and supervision : on the role and design of public credit registries," Policy Research Working Paper Series 3443, The World Bank.
  10. Frédéric KOESSLER, 2002. "Strategic Knowledge Sharing in Bayesian Games: Applications," Working Papers of BETA 2002-02, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  11. repec:cai:recosp:reco_p1994_45n3_0715 is not listed on IDEAS
  12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  13. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2008. "Information sharing and credit: Firm-level evidence from transition countries," CFS Working Paper Series 2008/34, Center for Financial Studies (CFS).
  14. André Grimaud & Jean-Charles Rochet, 1994. "L'apport du modèle de concurrence monopolistique à l'économie bancaire," Revue Économique, Programme National Persée, vol. 45(3), pages 715-726.
  15. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May.
  16. Vercammen, James A, 1995. "Credit Bureau Policy and Sustainable Reputation Effects in Credit Markets," Economica, London School of Economics and Political Science, vol. 62(248), pages 461-78, November.
  17. Marcello Bofondi & Giorgio Gobbi, 2006. "Informational Barriers to Entry into Credit Markets," Review of Finance, European Finance Association, vol. 10(1), pages 39-67.
  18. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  19. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
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