Bank Competition and Bargaining over Refinancing

45 Pages Posted: 24 Oct 2022 Last revised: 26 Apr 2024

See all articles by Marina Emiris

Marina Emiris

National Bank of Belgium - Research Department

Francois Koulischer

University of Luxembourg

Christophe Spaenjers

University of Colorado Boulder - Leeds School of Business

Date Written: September 10, 2024

Abstract

We model mortgage refinancing as a bargaining game involving the borrowing household, the incumbent lender, and outside banks. We show that bargaining can provide a competitive advantage to the incumbent bank. In equilibrium, the borrower’s ability to refinance depends on the incumbent bank’s cost (dis)advantage relative to locally present competing banks and on the average creditworthiness of borrowers in the relevant market. It is also driven by borrower impatience and switching costs. We find empirical support for the key predictions of our model in an administrative data set covering the universe of mortgages in Belgium.

Keywords: mortgage markets, refinancing, bargaining, bank competition, switching costs

Suggested Citation

Emiris, Marina and Koulischer, Francois and Spaenjers, Christophe, Bank Competition and Bargaining over Refinancing (September 10, 2024). Available at SSRN: https://ssrn.com/abstract=4255503 or http://dx.doi.org/10.2139/ssrn.4255503

Marina Emiris

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Francois Koulischer

University of Luxembourg ( email )

Kirchberg, 6, rue Richard Coudenhove-Kalergi
Luxembourg
Luxembourg

Christophe Spaenjers (Contact Author)

University of Colorado Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

HOME PAGE: http://christophespaenjers.com

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