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Centralized and decentralized lending: Implications of consolidation in the German banking industry

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  • Lopomo Beteto Wegner, Danilo

Abstract

This paper addresses the implications of consolidation in the German banking industry regarding the operation of savings banks. Savings banks are one of the pillars of Germany’s banking system and the main providers of loans to small and medium firms that, in turn, are the predominant drivers of the economy. We develop a theoretical model showing that, by changing the organizational structure of savings banks from decentralized decision making (loan approval made by local officers) to centralized (loan approval at the headquarters), consolidation of the banking industry might lead financial institutions to ration credit in situations where such outcome would be unwarranted. The cause of this result is that delegated authority (decentralized structure) can make use of soft-information which otherwise would be neglected under a hierarchical arrangement (centralized structure).

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  • Lopomo Beteto Wegner, Danilo, 2024. "Centralized and decentralized lending: Implications of consolidation in the German banking industry," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 1051-1063.
    • Handle: RePEc:eee:reveco:v:91:y:2024:i:c:p:1051-1063
    DOI: 10.1016/j.iref.2024.01.031
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank structure; Savings banks; Soft-information;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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