Abstract

http://ssrn.com/abstract=2191962
 
 

References (16)



 
 

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Banking Competition and Soft Budget Constraints: How Market Power Can Threaten Discipline in Lending


Stefan Arping


University of Amsterdam Business School; Tinbergen Institute

December 19, 2012

Tinbergen Institute Discussion Paper 12-146/DSF49/IV

Abstract:     
In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.

Number of Pages in PDF File: 19

Keywords: Banking Competition, Soft Budget Constraint Problem, Moral Hazard

JEL Classification: G2, G3

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Date posted: December 21, 2012  

Suggested Citation

Arping, Stefan, Banking Competition and Soft Budget Constraints: How Market Power Can Threaten Discipline in Lending (December 19, 2012). Tinbergen Institute Discussion Paper 12-146/DSF49/IV. Available at SSRN: http://ssrn.com/abstract=2191962 or http://dx.doi.org/10.2139/ssrn.2191962

Contact Information

Stefan Arping (Contact Author)
University of Amsterdam Business School ( email )
Roetersstraat 18
Amsterdam, 1018WB
Netherlands
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
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