Risk-Based Pricing in Competitive Lending Markets

43 Pages Posted: 26 May 2022

See all articles by Carola Müller

Carola Müller

Center for Latin American Monetary Studies – CEMLA; Halle Institute for Economic Research

Ragnar Juelsrud

affiliation not provided to SSRN

Henrik Andersen

Central Bank of Norway

Abstract

We use unique relationship-level data which includes banks’ private risk assessments of corporate borrowers to quantify how competition among banks a ects the risk sensitivity of interest rates in the Norwegian corporate credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks’ own assessment of borrower probability of default and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise values, outlining a novel channel of how the competition-fragility nexus can operate.

Keywords: Banking competition, market power, risk-based pricing, nancial stability

Suggested Citation

Müller, Carola and Juelsrud, Ragnar and Andersen, Henrik, Risk-Based Pricing in Competitive Lending Markets. Available at SSRN: https://ssrn.com/abstract=4120047 or http://dx.doi.org/10.2139/ssrn.4120047

Carola Müller

Center for Latin American Monetary Studies – CEMLA ( email )

Durango 54, Roma Nte
06700
Mexico

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Ragnar Juelsrud (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Henrik Andersen

Central Bank of Norway ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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