The Effect of Bank Competition on the Bankâ€™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 projectâ€™s risk than entrepreneurs. We study the bankâ€™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:||Sep 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Geschwister-Scholl-Platz 1, D-80539 Munich, Germany|
Web page: http://www.sfbtr15.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:216. 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.