Policy makers often decide to liberalize foreign bank entry but at the same time restrict the mode of entry. We study how different entry modes affect the interest rate for loans in a model in which domestic banks possess private information about their incumbent clients but foreign banks have...

The popular notion that transition countries are overbanked is challenged in this paper. We study the decision for market entry and the optimal number of banks in a Salop model. We show that the amount of collateral, which is necessary to solve the moral hazard problem of finance, depends on the...

In many developing and transition countries, we observe rather high levels of corruption. We argue that the missing political support for anti-corruption policies is due to a lack of economic and financial reforms. Our model is based on the fact that corrupt officials have to pay entry fees to...

The financial integration in Europe concentrates on cross-border mergers rather than cross-border lending and emphasizes the need for harmonizing bank regulation and supervision. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft...

In transition and developing countries, we observe rather high levels of corruption even if they have democratic political systems. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. Our model is based on the fact...

Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm’s type to its competitors. Thereby,...

Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm’s type to its competitors. Thereby,...

Banks entering an emerging market face a lot of uncertainty about the risks involved in lending. We use a unique unbalanced panel of nearly 700 short-term loans made to SMEs in Slovakia between January 2000 and June 2005. Of the loans granted, on average 6.0 per cent of the firms defaulted....

It has been argued that competing banks make inefficiently frequent use of collateralization in situations where they are better able to evaluate a project's risk than entrepreneurs. We study the bank's choice between screening and collateralization in a model where banks do not have this...