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Learning by Lending, Competition, and Screening Incentives in the Banking Industry


  • Giovanni Dell
  • Ariccia#x2019


This paper shows that banks may have an incentive to reduce screening when the proportion of untested borrowers on the market increases, leading to a deterioration of their portfolios and a contraction of their profits. The paper addresses the issue in the context of a simple model where banks compete solely on screening and in a more complex model where banks compete by offering borrowers a menu of contracts. The results have policy implications with regard to financial liberalization, lending booms, and banking crises, as those occurred at different times in many emerging markets.

Suggested Citation

  • Giovanni Dell & Ariccia#x2019, 2000. "Learning by Lending, Competition, and Screening Incentives in the Banking Industry," Center for Financial Institutions Working Papers 00-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:00-10

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    References listed on IDEAS

    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Is Bank Supervision Central to Central Banking?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 629-653.
    3. Padoa-Schioppa, Tommaso, 1999. "EMU and Banking Supervision," International Finance, Wiley Blackwell, vol. 2(2), pages 295-308, July.
    4. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    5. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    6. Franklin Allen & Douglas Gale, 1999. "Innovations in Financial Services, Relationships, and Risk Sharing," Management Science, INFORMS, vol. 45(9), pages 1239-1253, September.
    7. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    8. Joseph G. Haubrich, 1996. "Combining bank supervision and monetary policy," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
    9. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
    10. Carmine DiNoia, 1994. "Structuring Deposit Insurance in Europe: Some Considerations and a Regulatory Game," Center for Financial Institutions Working Papers 94-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. Dirk Schoenmaker, 1992. "Institutional Separation between Supervisory and Monetary Agencies," FMG Special Papers sp52, Financial Markets Group.
    12. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, July.
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    Cited by:

    1. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Staff Working Papers 04-24, Bank of Canada.
    2. Nicola Cetorelli, 2001. "Does bank concentration lead to concentration in industrial sectors?," Working Paper Series WP-01-01, Federal Reserve Bank of Chicago.
    3. Florian LEON, 2015. "What do we know about the role of bank competition in Africa?," Working Papers 201516, CERDI.
    4. Cetorelli, Nicola & Peretto, Pietro F., 2000. "Oligopoly Banking and Capital Accumulation," Working Papers 00-19, Duke University, Department of Economics.
    5. Giannetti, Caterina & Jentzsch, Nicola, 2013. "Credit reporting, financial intermediation and identification systems: International evidence," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 60-80.
    6. Agostino, Mariarosaria & Gagliardi, Francesca & Trivieri, Francesco, 2010. "Credit market structure and bank screening: An indirect test on Italian data," Review of Financial Economics, Elsevier, vol. 19(4), pages 151-160, October.
    7. Nicola Cetorelli, 2004. "Real effects of bank competition," Proceedings, Federal Reserve Bank of Cleveland, pages 543-562.
    8. Xavier Freixas, 2005. "Deconstructing relationship banking," Investigaciones Economicas, FundaciĆ³n SEPI, vol. 29(1), pages 3-31, January.
    9. repec:eee:jmacro:v:54:y:2017:i:pb:p:373-392 is not listed on IDEAS
    10. Khan, Habib Hussain & Ahmad, Rubi Binti & Gee, Chan Sok, 2016. "Bank competition and monetary policy transmission through the bank lending channel: Evidence from ASEAN," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 19-39.
    11. Deidda, Luca & Fattouh, Bassam, 2005. "Concentration In The Banking Industry And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 9(02), pages 198-219, April.
    12. Nicola Cetorelli, 2001. "Competition among banks: good or bad?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 38-48.

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