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Loan market competition screening and bank stability

Author

Listed:
  • Fabiana Gómez

    (Toulouse School of Economics (Gremaq))

  • Jorge Ponce

    (Banco Central del Uruguay)

Abstract

We analyze the impact of competition on the stability of a banking industry facing adverse selection and moral hazard problems. We focus the analysis on the effects of competition on the efficiency of banks to screen potential borrowers, and on its equilibrium effects on the unobservable level of effort exerted by borrowers. We find that in each symmetric equilibrium there exists a threshold value for the number of banks in the market above which more competition deteriorates stability

Suggested Citation

  • Fabiana Gómez & Jorge Ponce, 2010. "Loan market competition screening and bank stability," Documentos de trabajo 2010005, Banco Central del Uruguay.
    • Handle: RePEc:bku:doctra:2010005
    as

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    File URL: https://www.bcu.gub.uy/Estadisticas-e-Indicadores/Documentos%20de%20Trabajo/5.2010.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    loan market competition; bank stability; adverse selection; moral hazard;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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