Multiple-Bank Lending, Creditor Rights and Information Sharing

48 Pages Posted: 12 Feb 2009 Last revised: 18 Feb 2009

See all articles by Alberto Bennardo

Alberto Bennardo

University of Salerno - Centre for Studies in Economics and Finance (CSEF); University of California, Los Angeles (UCLA) - Department of Economics; Centre for Economic Policy Research (CEPR)

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF

Multiple version iconThere are 2 versions of this paper

Date Written: February 16, 2009

Abstract

When a customer can borrow from several competing banks, multiple lending raises default risk. If creditor rights are poorly protected, this contractual externality can generate novel equilibria with strategic default and rationing, in addition to equilibria with excessive lending or non-competitive rates. Information sharing among banks about clients' past indebtedness lowers interest and default rates, improves access to credit (unless the value of collateral is very uncertain) and may act as a substitute for creditor rights protection. If information sharing also allows banks to monitor their clients' subsequent indebtedness, the credit market may achieve full efficiency.

Keywords: information sharing, multiple-bank lending, creditor rights, seniority, non-exclusivity

JEL Classification: D73, K21, K42, L51

Suggested Citation

Bennardo, Alberto and Pagano, Marco and Piccolo, Salvatore, Multiple-Bank Lending, Creditor Rights and Information Sharing (February 16, 2009). Available at SSRN: https://ssrn.com/abstract=1341357 or http://dx.doi.org/10.2139/ssrn.1341357

Alberto Bennardo

University of Salerno - Centre for Studies in Economics and Finance (CSEF) ( email )

84084 Fisciano, Salerno
Italy

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Salvatore Piccolo (Contact Author)

University of Bergamo, Compass Lexecon and CSEF ( email )

via de caniana 2
24127
Bergamo, BG 24127
Italy

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