Discussion Paper Details

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Title: Multiple-Bank Lending, Creditor Rights and Information Sharing

Author(s): Alberto Bennardo, Marco Pagano and Salvatore Piccolo

Publication Date: February 2009

Keyword(s): creditor rights, information sharing, multiple-bank lending, non-exclusivity and seniority

Programme Area(s): Financial Economics

Abstract: When a customer can borrow from several competing banks, multiple lending raises default risk. If creditor rights are poorly protected, this contractual externality can generate novel equilibria with strategic default and rationing, in addition to equilibria with excessive lending or non-competitive rates. Information sharing among banks about clients' past indebtedness lowers interest and default rates, improves access to credit (unless the value of collateral is very uncertain) and may act as a substitute for creditor rights protection. If information sharing also allows banks to monitor their clients' subsequent indebtedness, the credit market may achieve full efficiency.

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Bibliographic Reference

Bennardo, A, Pagano, M and Piccolo, S. 2009. 'Multiple-Bank Lending, Creditor Rights and Information Sharing'. London, Centre for Economic Policy Research.