A Theory of Banks' Industry Expertise, Market Power, and Credit Risk

نویسنده

  • Alex Stomper
چکیده

I analyze banks’ incentives to acquire expertise in judging the credit-worthiness of borrowers in an industry with uncertain business conditions. The optimal industrial organization of bank lending features several banks with industry expertise, as well as a competitive fringe of banks without such expertise. The analysis provides a foundation for analyzing the relative merits of focus vs. diversification in bank lending. Furthermore, I analyze how banks’ industry expertise gives them market power, and how that affects the industry. Finally, I show that credit risk models should consider banks’ industry expertise as a determinant of correlation between credit risk factors. JEL: G21, L13.

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عنوان ژورنال:
  • Management Science

دوره 52  شماره 

صفحات  -

تاریخ انتشار 2006