Loan market competition screening and bank stability

Fabiana Gómez () and Jorge Ponce
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Fabiana Gómez: Toulouse School of Economics (Gremaq)

No 2010005, Documentos de trabajo from Banco Central del Uruguay

Abstract: We analyze the impact of competition on the stability of a banking industry facing adverse selection and moral hazard problems. We focus the analysis on the effects of competition on the efficiency of banks to screen potential borrowers, and on its equilibrium effects on the unobservable level of effort exerted by borrowers. We find that in each symmetric equilibrium there exists a threshold value for the number of banks in the market above which more competition deteriorates stability

Keywords: loan market competition; bank stability; adverse selection; moral hazard (search for similar items in EconPapers)
JEL-codes: D42 G24 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-11-03
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