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Information asymmetry between banks, rent extraction, and switching in mortgage lending

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  • Reite, Endre J.

Abstract

This study explores how banks compete for a mortgage following different information about the same client. We employ inside information about a bank's clients and the information available to an outside bank making a competing offer for 13,080 individual mortgage clients in Norway from 2010 to 2018. We demonstrate that disentangling the effects of the duration of the client‒bank relationship and the asymmetric information between banks bridges a gap in the existing literature. The inside bank is less sensitive to negative external information and extracts rent based on the length of the client‒bank relationship.

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  • Reite, Endre J., 2022. "Information asymmetry between banks, rent extraction, and switching in mortgage lending," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322005189
    DOI: 10.1016/j.frl.2022.103339
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    1. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    2. Ongena, Steven & Paraschiv, Florentina & Reite, Endre J., 2023. "Counteroffers and Price Discrimination in Mortgage Lending," Journal of Empirical Finance, Elsevier, vol. 74(C).
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    Cited by:

    1. Wu, Jiaxu & Yang, Yibing, 2024. "The impact of bank-enterprise distance on the digital economic value of manufacturing enterprises," Finance Research Letters, Elsevier, vol. 60(C).
    2. Ongena, Steven & Paraschiv, Florentina & Reite, Endre J., 2023. "Counteroffers and Price Discrimination in Mortgage Lending," Journal of Empirical Finance, Elsevier, vol. 74(C).
    3. Endre J. Reite & Joakim Blix Prestmo, 2023. "Platform Perils: The winner's curse on B2C consumer lending platforms," Economics Bulletin, AccessEcon, vol. 43(1), pages 500-509.
    4. Du, Weijian & Fan, Yuhuan & Liang, Sunfan & Li, Mengjie, 2023. "The power of belief: Religious traditions and rent-seeking of polluting enterprises in China," Finance Research Letters, Elsevier, vol. 54(C).
    5. Fan, Wei & Ying, Qianwei & Meng, Guo, 2023. "The signaling effect of policy loans: Do commercial banks follow up or stand by?," Finance Research Letters, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Information asymmetry; Bank switching; Mortgage switching cost; Client‒bank relationship;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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