Bank Competition, Information Choice and Inefficient Lending Booms

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Martin Ruckes. Bank competition and credit standards. The Review of Financial Studies, 17(4):1073–1102, 2004. Moritz Schularick and Alan Taylor. Credit booms gone bust: Monetary policy, leverage cycles and financial crises, 1870-2008. Working Paper Series 15512, National Bureau of Economic Research, 2009. John Taylor. Housing and monetary policy. Working Paper Series 14631, National Bureau of Economic Research, 2007. Aaron Tornell and Frank Westermann. Boom-bust cycles in middle income countries: Facts and explanation. IMF Staff Papers, 49(Special i):111–155, 2002. Ernst-Ludwig von Thadden. Asymmetric information, bank lending and implicit contracts: the winner’s curse. Finance Research Letters, 1(1):11–23, 2004. 32
A Appendix A.1 Derivation of Posterior Beliefs after Screening From the definition of the test, it is immediate that the cumulative density function of σ i conditional on the project’s actual quality p i being p is given by a weighted combination of the cumulative of the random distribution and a step function, ( 1 P (σ i ≤ s|p i = p) = (1 − λ) 2 + s − ¯p ) + λH(s − p) (24) ε where H(·) is the Heaviside step function that evaluates to zero if the argument is negative, and to one otherwise. The corresponding probability density function 14 then reads P (σ i = s|p i = p) = (1 − λ) 1 ε + λδ(s − p) (25) where δ(x) denotes the Dirac delta distribution that satisfies By Bayes’ Law, ∫ ∞ −∞ δ(x) = 1 and δ(x) = { 0 for x ≠ 0 +∞ for x = 0 P (p i = p|σ i = s) = P (σ i = s|p i = p)P (p i = p) P (σ i = s) = (1 − λ)ε −1 + λδ(s − p) (26) and the conditional expectation becomes ∫ E[p i |σ i = s] = p [ (1 − λ)ε −1 + λδ(s − p) ] dp ∫ = (1 − λ)ε −1 p dp + λs = (1 − λ)E[p] + λs (27) A.2 Proofs Proof of Proposition 1: The result for m SB λ success probability A SB λ follows trivially from m SB λ , observe that the statement is true for mSB = 1−E λ (q). To verify the indicated average ∈ {0, 1}. Thus, we 14 strictly, this is not a function, but a distribution in the Schwartz sense λ 33
Page 1 and 2: Bank Competition, Information Choic
Page 3 and 4: loan portfolio, she will clearly su
Page 5 and 6: 2 Model 2.1 Setup The economy in my
Page 7 and 8: γ to parametrize changes in the st
Page 9 and 10: Corollary 1.1. The second-best allo
Page 11 and 12: λ 1 1 2 0 ¯p 1 q Figure 1: The pl
Page 13 and 14: quality, the entrant might still be
Page 15 and 16: careless lenders incur higher refin
Page 17 and 18: from the results in the last sectio
Page 19 and 20: 1 1 λ ∗ (q) λ ∗ (q) γ = 0.3
Page 21 and 22: these questions, it is important to
Page 23 and 24: the change in q. What can be done i
Page 25 and 26: probability as a function of credit
Page 27 and 28: Let me use the following somewhat s
Page 29 and 30: whether a bank is really able to ex
Page 31: Robert Hauswald and Robert Marquez.
Page 35 and 36: negative profits; this holds even m
Page 37 and 38: the derivative of (31) with respect
Page 39 and 40: credit. However, less competition a

Bank Competition, Information Choice and Inefficient Lending Booms

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