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The Role of Banks as Producers of Information: Can It Survive Competition and Cross-Selling Incentives?

Author

Listed:
  • Stefania Cosci

    (Department of Law, LUMSA University of Rome Via Pompeo Magno 22, 00192 Rome, ITALY)

  • Valentina Meliciani

    (Department of Business and Management, LUISS Guido Carli University of Rome Viale Romania 32, 00197 Rome, ITALY)

  • Valentina Sabato

    (Department of Economic, Political Sciences and Modern Languages, LUMSA University of Rome Via Pompeo Magno 22, 00192 Rome, ITALY)

Abstract

This paper studies the impact of competition on lending behaviour and cross-selling incentives of banks in a spatial competition model of the banking sector where positively evaluated loan applicants are more likely to buy other services from their lending bank. Overall our model suggests that the more competition increases in the loan market, the more the banking system is encouraged to move towards non-traditional activities and the less credit is information-based. This undesired effect of competition in the loan market may have contributed in the past to the excessive risk-taking behaviour of European banks and could hamper the stability of the financial system in the future.

Suggested Citation

  • Stefania Cosci & Valentina Meliciani & Valentina Sabato, 2015. "The Role of Banks as Producers of Information: Can It Survive Competition and Cross-Selling Incentives?," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 60-77, November.
    • Handle: RePEc:bap:journl:150404
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank-firm relationships; Screening; Cross-selling; Spatial competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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