Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending

In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.

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Year of publication:	2012-12-20
Authors:	Arping, Stefan
Institutions:	Tinbergen Instituut
Subject:	Banking Competition \| Soft Budget Constraint Problem \| Moral Hazard

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Extent:	application/pdf
Series:	Tinbergen Institute Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Tinbergen Institute Discussion Papers Number 12-146/IV/DSF49
Classification:	G2 - Financial Institutions and Services ; G3 - Corporate Finance and Governance
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011256369