Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104246
Authors: 
Hainz, Christa
Year of Publication: 
2007
Series/Report no.: 
Munich Discussion Paper 2007-32
Abstract: 
Why do banks remain passive? In a model of bank-firm relationship we study the trade-off a bank faces when having defaulting firms declared bankrupt. First, the bank receives a payoff if a firm is liquidated. Second, it provides information about a firm’s type to its competitors. Thereby, asymmetric information between banks is reduced and bank competition intensifies. We find that the better the institutions and the more competitive the banking sector, the higher the bank’s incentive to bankrupt defaulting firms. This makes information between banks less asymmetric and thus leads to lower interest rates and less credit rationing.
Subjects: 
Creditor passivity
bank competition
information sharing
institutions
bankruptcy
relationship banking
JEL: 
G21
G33
K10
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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