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The Role of Banks as Producers of Information: Can It Survive Competition and Cross-Selling Incentives?

Stefania Cosci (), Valentina Meliciani () and Valentina Sabato ()
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Stefania Cosci: Department of Law, LUMSA University of Rome Via Pompeo Magno 22, 00192 Rome, ITALY
Valentina Meliciani: Department of Business and Management, LUISS Guido Carli University of Rome Viale Romania 32, 00197 Rome, ITALY
Valentina Sabato: Department of Economic, Political Sciences and Modern Languages, LUMSA University of Rome Via Pompeo Magno 22, 00192 Rome, ITALY

Review of Economics & Finance, 2015, vol. 5, pages 60-77

Abstract: This paper studies the impact of competition on lending behaviour and cross-selling incentives of banks in a spatial competition model of the banking sector where positively evaluated loan applicants are more likely to buy other services from their lending bank. Overall our model suggests that the more competition increases in the loan market, the more the banking system is encouraged to move towards non-traditional activities and the less credit is information-based. This undesired effect of competition in the loan market may have contributed in the past to the excessive risk-taking behaviour of European banks and could hamper the stability of the financial system in the future.

Keywords: Bank-firm relationships; Screening; Cross-selling; Spatial competition (search for similar items in EconPapers)
JEL-codes: D43 D82 G21 L15 (search for similar items in EconPapers)
Date: 2015
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