Sharing Default Information as a Borrower Discipline Device

A Jorge Padilla and Marco Pagano

CEPR Financial Markets Paper from European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX.

Abstract: Creditors often share their information about their customers' credit record, directly or via information brokers such as credit bureaus and rating agencies. Besides helping them to spot bad risks, this informational exchange acts as a disciplinary device. If creditors are known to exchange data about defaults, borrowers must consider that default on a current lender would disrupt their credit rating with all the other lenders. This disciplinary effect of information sharing can reduce the average default rate and increase the efficiency of the credit market, and it invariably sharpens competition between banks. But more detailed and extensive information sharing is not necessarily better: we show that the efficiency gains obtained obtained by pooling only data about past defaults can exceed those entailed by sharing all the information possesed by lenders.

Keywords: Information Sharing; Credit Market; Incentives (search for similar items in EconPapers)
Date: 1994-01
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Related works:
Journal Article: Sharing default information as a borrower discipline device (2000)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1999)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1999)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1999)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1996)
Working Paper: Sharing Default Information as a Borrower Discipline Device (1996)
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