Endogenous Relationship Banking to Alleviate Excessive Screening in Transaction Banking

43 Pages Posted: 8 Mar 2005

See all articles by Yoshiaki Ogura

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics

Date Written: December 2006

Abstract

This paper analyzes how learning a borrower's creditworthiness, from past lending decision by a rival bank that is publicly observable through private or public credit reporting systems, affects the performance of subsequent lending competitions. Our analysis of twice-repeated lending competitions demonstrates that such ex post information sharing causes inefficient and excessive screening of new borrowers when banks undertake transaction banking since each bank expects future disadvantages to result from the information revelation. Relationship banking arises endogenously as a defense against such anticipated disadvantage, and improves the economic efficiency by alleviating the excessive screening.

Keywords: relationship banking, informational externality, interbank competition, common-value repeated auction

JEL Classification: G21, L14

Suggested Citation

Ogura, Yoshiaki, Endogenous Relationship Banking to Alleviate Excessive Screening in Transaction Banking (December 2006). Available at SSRN: https://ssrn.com/abstract=677363 or http://dx.doi.org/10.2139/ssrn.677363

Yoshiaki Ogura (Contact Author)

Waseda University, Faculty of Political Science and Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
182
Abstract Views
1,383
rank
203,192
PlumX Metrics