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Informational rents in interbank competition

Published online by Cambridge University Press:  17 August 2016

Paolo G. Garella
Paolo G. Garella*
Affiliation:
University of Bologna & I.G.I.E.R.-Bocconi
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Summary

The present paper develops a two-period, simple model of interbank competition based on the idea that banks can partially control the behaviour of borrowers. The control effort by one bank over its customers is not observable by competitor banks. It is shown that the equilibrium behaviour of banks is characterised by a distorted incentive to exert the control effort. A second implication of the model is that unexpected tightening of the interest rate policy by the Central Bank increases the banks’ liabilities and thereby influences their loan policy. It is also shown that the returns from control are lower if banks expect that the economy be hit by a negative shock.

Résumé

Résumé

Cet article développe un modèle à deux périodes de concurrence interbanquaire reposant sur l’idée que celles-ci peuvent contrôler, de manière partielle, le comportement des emprunteurs. Le niveau de contrôle effectué par une banque sur ces client n’est pas observable par son concurrent. Il est montré que le comportement des banques, à l’équilibre, est caractérisé par de mauvaises incitations à exercer l’effort de contrôle. Une deuxième implication du modèle est qu’un durcissement innattendu de la politique monétaire de la Banque Centrale accroît les dettes des banques et donc influence leur politique de prêt. Il est aussi montré que la rentabilité des contrôles est plus faible si les banques sont dans l’attente d’un choc négatif sur l’économie.

Keywords

D82G21G38D82G21G38
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 62 , Issue 1 , 1996 , pp. 3 - 20
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1996 

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