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Credit Risk Transfer and Bank Competition (Hakenes H., Schnabel I.)

Bank Lending Competition and Market Power Information Asymmetry and Transparency Risk-taking and Risk Management

Abstract We present a banking model with imperfect competition in which borrowers’ access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is private information, banks have an incentive to grant unprofitable loans in order to transfer them to other parties, leading to an increase in aggregate risk. Nevertheless, the introduction of CRT generally increases welfare in our setup. However, under private information, higher competition induces an expansion of loans to unprofitable firms, which in the limit offsets the welfare gains from CRT completely.
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Libref/ Hakenes H., Schnabel I. (2009) “Credit Risk Transfer and Bank Competition”, Preprints of the Max Planck Institute for Research on Collective Goods, No. 2009/33, pp. 1-47
© Программирование — Александр Красильников, 2008
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