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Banks of a feather: The informational advantage of being alike

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  • Bednarek, Peter
  • Dinger, Valeriya
  • Schultz, Alison
  • von Westernhagen, Natalja

Abstract

Banks lend more to banks that are similar to them. Using data from the German credit register and proprietary supervisory data on the quality of banks' loan portfolio, we show that a similar portfolio of the lending and borrowing bank helps to overcome information asymmetries in interbank markets. While interbank lenders generally do not adjust their lending to information on the counterparty's portfolio quality, banks with an exposure to similar industries and regions strongly react to this private information. Lending between similar banks is particularly important for borrowers with an opaque loan portfolio, which do not obtain credit from dissimilar peers.

Suggested Citation

  • Bednarek, Peter & Dinger, Valeriya & Schultz, Alison & von Westernhagen, Natalja, 2023. "Banks of a feather: The informational advantage of being alike," Discussion Papers 09/2023, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:092023
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    More about this item

    Keywords

    Peer monitoring; interbank markets; asymmetric information; portfolio quality; portfolio similarity; systemic risk and contagion;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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