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Bank Competition, Concentration, and Credit Reporting

35 Pages Posted: 20 Apr 2016  

Miriam Bruhn

World Bank - Development Research Group (DECRG)

Subika Farazi

World Bank

Martin Kanz

World Bank; World Bank - Development Research Group (DECRG)

Date Written: May 1, 2013

Abstract

This paper explores the empirical relationship between bank competition, bank concentration, and the emergence of credit reporting institutions. The authors find that countries with lower entry barriers into the banking market (that is, a greater threat of competition) are less likely to have a credit bureau, presumably because banks are less willing to share proprietary information when the threat of market entry is high. In addition, a credit bureau is significantly less likely to emerge in economies characterized by a high degree of bank concentration. The authors argue that the reason for this finding is that large banks stand to lose more monopoly rents from sharing their extensive information with smaller players. In contrast, the data show no significant relationship between bank competition or concentration and the emergence of a public credit registry, where banks' participation is mandatory. The results highlight that policies designed to promote the voluntary creation of a credit bureau need to take into account banks' incentives to extract monopoly rents from proprietary credit information.

Keywords: Access to Finance, Banks & Banking Reform, Bankruptcy and Resolution of Financial Distress, Debt Markets, Economic Theory & Research

Suggested Citation

Bruhn, Miriam and Farazi, Subika and Kanz, Martin, Bank Competition, Concentration, and Credit Reporting (May 1, 2013). World Bank Policy Research Working Paper No. 6442. Available at SSRN: https://ssrn.com/abstract=2264680

Miriam Bruhn (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
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Subika Farazi

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

Martin Kanz

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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