Do bad borrowers hurt good borrowers? A model of biased banking competition
Tóm tắt
This paper explores a two-bank model in which, first, one bank correctly estimates the probability of low-quality loan repayment while the other overestimates it, and second, both banks have identical convex costs when granting loans. In this context of optimistically biased banking competition, we show how the unbiased bank follows the biased competitor as long as the bias of the latter is not too large. This would favour bad borrowers, who get better credit conditions at the expense of good borrowers. As a consequence, the presence of a biased bank increases welfare as long as the expected default rate is sufficiently high. Contrariwise, in subprime markets, biased banking competition would be socially harmful.
Tài liệu tham khảo
Argenton C, Muller W (2012) Collusion in experimental Bertrand duopolies with convex costs: the role of cost asymmetry. Int J Ind Organ 30:508–517
Banerji S, Raj RSN, Sen K (2016) Monitoring costs, credit constraints and entrepreneurship. Manch Sch 84:573–599
Boz E, Mendoza EG (2014) Financial innovation, the discovery of risk, and the U.S. credit crisis. J Monet Econ 62:1–22
Breitenfellner B, Wagner N (2010) Government intervention in response to the subprime financial crisis: the good into the pot, the bad into the crop. Int Rev Financ Anal 19:289–297
Bulow JI, Geanakoplos JD, Klemperer P (1985) Multimarket oligopoly: strategic substitutes and complements. J Polit Econ 93(3):488–511
Burakov D (2016) Retesting the institutional memory hypothesis: an experimental study. Panoeconomicus 2016 OnLine-first issue 00. Pages:3–3. https://doi.org/10.2298/PAN160105003B
Camerer CF, Lovallo D (1999) Overconfidence and excess entry: an experimental approach. Am Econ Rev 89:306–318
Cetorelli N (2014) Surviving credit market competition. Econ Inq 52:320–340
Cole S, Kank M, Klapper L (2015) Incentivizing calculated risk-taking: evidence from an experiment with commercial Bank loan officers. J Financ 70(2):537–575
de Grawe P, Macchiarelli C (2015) Animal spirits and credit cycles. J Econ Dyn Control 59:95–117
Freixas X, Rochet J-C (1998) Microeconomics of banking, 3rd edn. The MIT Press, Cambridge, Mass
Freixas X, Hurkens S, Morrison AD, Vulkan N (2007) Interbank competition with costly screening. The BE Journal of Theoretical Economics 7:15
Grosse R (2012) Bank regulation, governance and the crisis: a behavioral finance view. Journal of Financial Regulation and Compliance 20(1):4–25
Hakenes H, Schnabel I (2010) Credit risk transfer and bank competition. J Financ Intermed 19:308–332
Huang AY, Cheng C-M (2013) Information risk and credit contagion. Finance Research Letters 10:116–123
Jaffee D, Stiglitz JE (1990) Chapter 16 credit rationing. Handbook of Monetary Economics 2(C):837–888
Kahneman D, Riepe M (1998) Aspects of investor psychology. J Portf Manag 24:52–65
Keen S (2013) A monetary Minsky model of the great moderation and the great recession. J Econ Behav Organ 86C:221–235
Lorenzoni G (2008) Inefficient credit booms. Rev Econ Stud 75:809–833
Ma Y (2012) Bank CEO optimism and the financial crisis. Mimeo. Harvard University. Available at https://scholar.harvard.edu/yueranma/bank-ceo-optimism-and-financial-crisis
Malmendier U, Tate G (2005) CEO overconfidence and corporate investment. J Financ 60:2661–2700
Maudos J, Fernández de Guevara J (2004) Factors explaining the interest margin in the banking sectors of the European Union. The Journal of Banking and Finance 28(9):2259–2281
Moore DA, Healy PJ (2008) The trouble with overconfidence. Psychol Rev 115:502–517
Nakamura LI (1993) Information externalities: why lending may sometimes need a jump start. Federal Reserve Bank of Philadelphia, Business Review issue Jan, 3–14
Peón D., Antelo, M. (2018) Mergers in financial services and overlending. Cuadernos de Economía 41:167–180
Peón D, Calvo A, Antelo M (2015a) On informational efficiency of the banking sector: a behavioral model of the credit boom. Studies in Economics and Finance 32:158–180
Peón D, Antelo M, Calvo A (2015b) A dynamic behavioral model of the credit boom. J Econ Issues 49:1077–1099
Rajan RG (1992) Insiders and outsiders: the choice between informed and arm’s length debt. J Financ 47(4):1367–1400
Rötheli TF (2012) Oligopolistic banks, bounded rationality, and the credit cycle. Economics Research International 2012:961316–961314
Sala-Rios M, Torres-Solé T, Farré-Perdiger M (2016) Credit and business cycles’ relationship: evidence from Spain. Port Econ J 15(3):149–171
Stiglitz JE, Weiss A (1981) Credit rationing in markets with imperfect information. Am Econ Rev 71:393–410
Thakor A (2015) Lending booms, smart bankers, and financial crises. Am Econ Rev Pap Proc 105(5):305–309