Cross-Selling Lending and Underwriting: Scope Economies and Incentives
34 Pages Posted: 5 Mar 2007 Last revised: 4 Oct 2008
Date Written: September 21, 2008
We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters' incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank's clients. In our model, cross-selling reduces rents in the underwriting business.
Keywords: cross-selling, investment banking, universal banking
JEL Classification: G21, G24, D49
Suggested Citation: Suggested Citation