Asymmetric Information, Bank Lending and Implicit Contracts: Differences between Banks
Asymmetric Information, Bank Lending and Implicit Contracts: Differences between Banks
Author(s): Juha-Pekka NiinimäkiSubject(s): Economy, Financial Markets
Published by: Univerzita Karlova v Praze - Institut ekonomických studií
Keywords: Asymmetric information; banking; relationship lending; bank competition; switching costs;
Summary/Abstract: This paper studies asymmetric in formation on banks, relationship lending and switching costs. According to the classic theory of relationship banking asymmetric information on borrower types causes an informational lock-in by borrowers: good borrowers are tied to their banks. This paper shows that an informational lock-in effect occurs even if borrowers are identical. Asymmetric information on banks generates an informational lock-in for borrowers. A borrower is tied to the initial bank even if it charges higher loan interest. The borrower is not ready to leave the bank and take a risk that the new bank proves to be even worse.
Journal: Czech Economic Review
- Issue Year: 9/2015
- Issue No: 02
- Page Range: 74-90
- Page Count: 17
- Language: English