Financial Liberalization, Competition, and Bank Loan Quality

Xiaofen Chen ()
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Xiaofen Chen: Truman State University, Postal: Truman State University, Social Science Division, Kirksville, MO, 63501, USA

Journal of Economic Integration, 2005, vol. 20, 109-122

Abstract:

The paper studies the relationship between financial liberalization, characterized by removing entry restrictions, and bank loan quality. It shows that if a banking market is liberalized, the opportunity cost of screening loan applicants is driven lower by competition. Thus, a bank facing an entry threat is more likely to invest in screening instead of relying on collateral requirements. Removing entry restrictions may improve loan quality stability and reduce correlation between bank performance and asset price fluctuations.

Keywords: financial liberalization; banking competition; screening; loan quality (search for similar items in EconPapers)
JEL-codes: G20 L10 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0308

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