Bank competition and bargaining over refinancing

Marina Emiris (), Francois Koulischer and Christophe Spaenjers ()
Additional contact information
Marina Emiris: : Economics and Research Department, National Bank of Belgium
Christophe Spaenjers: Leeds School of Business, University of Colorado Boulder

No 422, Working Paper Research from National Bank of Belgium

Abstract: We model mortgage refinancing as a bargaining game involving the borrowing household, the incumbent lender, and an outside bank. In equilibrium, the borrower’s ability to refinance depends both on the competitiveness of the local banking market and on the cost of switching banks. We find empirical support for the key predictions of our model using a unique data set containing the population of mortgages in Belgium. In particular, households’ refinancing propensities are positively correlated with the number of local branches and negatively correlated with local mortgage market concentration. Moreover, households are more likely to refinance externally if they already have a relation with more than one bank, but the effect is mitigated if their current mortgage lender has a branch locally.

Keywords: mortgage markets; refinancing; bargaining; bank competition; switching costs (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-com, nep-fmk, nep-gth and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202210-422

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