Learning from a rival bank and lending boom

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

When bankers observe a rival winning in the interbank competition for lending to a firm, they infer that the firm may be more promising than they had thought. From this consideration, they loosen their creditworthiness tests and lower the interest rates they offer in the next lending competition for the firm. Increased interbank competition reduces the impact of this observational learning and decreases the credit risk taken by each bank because of a severe winner's curse, while it increases the aggregate risk taken by the entire banking sector.

Original languageEnglish
Pages (from-to)535-555
Number of pages21
JournalJournal of Financial Intermediation
Volume15
Issue number4
DOIs
Publication statusPublished - 2006 Oct
Externally publishedYes

Fingerprint

Lending
Interest rates
Observational learning
Credit risk
Bankers
Creditworthiness
Banking sector
Winner's curse

Keywords

  • Financial liberalization
  • Interbank competition
  • Learning
  • Winner's curse

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Learning from a rival bank and lending boom. / Ogura, Yoshiaki.

In: Journal of Financial Intermediation, Vol. 15, No. 4, 10.2006, p. 535-555.

Research output: Contribution to journalArticle

@article{d5a3ff5f481340ba94f7005e27a5c54a,
title = "Learning from a rival bank and lending boom",
abstract = "When bankers observe a rival winning in the interbank competition for lending to a firm, they infer that the firm may be more promising than they had thought. From this consideration, they loosen their creditworthiness tests and lower the interest rates they offer in the next lending competition for the firm. Increased interbank competition reduces the impact of this observational learning and decreases the credit risk taken by each bank because of a severe winner's curse, while it increases the aggregate risk taken by the entire banking sector.",
keywords = "Financial liberalization, Interbank competition, Learning, Winner's curse",
author = "Yoshiaki Ogura",
year = "2006",
month = "10",
doi = "10.1016/j.jfi.2005.10.002",
language = "English",
volume = "15",
pages = "535--555",
journal = "Journal of Financial Intermediation",
issn = "1042-9573",
publisher = "Academic Press Inc.",
number = "4",

}

TY - JOUR

T1 - Learning from a rival bank and lending boom

AU - Ogura, Yoshiaki

PY - 2006/10

Y1 - 2006/10

N2 - When bankers observe a rival winning in the interbank competition for lending to a firm, they infer that the firm may be more promising than they had thought. From this consideration, they loosen their creditworthiness tests and lower the interest rates they offer in the next lending competition for the firm. Increased interbank competition reduces the impact of this observational learning and decreases the credit risk taken by each bank because of a severe winner's curse, while it increases the aggregate risk taken by the entire banking sector.

AB - When bankers observe a rival winning in the interbank competition for lending to a firm, they infer that the firm may be more promising than they had thought. From this consideration, they loosen their creditworthiness tests and lower the interest rates they offer in the next lending competition for the firm. Increased interbank competition reduces the impact of this observational learning and decreases the credit risk taken by each bank because of a severe winner's curse, while it increases the aggregate risk taken by the entire banking sector.

KW - Financial liberalization

KW - Interbank competition

KW - Learning

KW - Winner's curse

UR - http://www.scopus.com/inward/record.url?scp=33748773946&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=33748773946&partnerID=8YFLogxK

U2 - 10.1016/j.jfi.2005.10.002

DO - 10.1016/j.jfi.2005.10.002

M3 - Article

VL - 15

SP - 535

EP - 555

JO - Journal of Financial Intermediation

JF - Journal of Financial Intermediation

SN - 1042-9573

IS - 4

ER -