Σάββατο, 6 Ιουλίου 2013

How Market Power can threaten Discipline in Lending

In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates.
 
The paper is available here.