Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209797 
Year of Publication: 
2004
Series/Report no.: 
Working Paper No. 2001/8
Publisher: 
Norges Bank, Oslo
Abstract: 
This paper studies strategies pursued by banks in order to differentiate their services and soften competition. More specifically we analyse whether bank's ability to avoid losses, its capital ratio, or bank size can be used as strategic variables to make banks different and increase the interest rates banks can charge their borrowers in equilibrium. Using a panel of data covering Norwegian banks between 1993 and 1998 we find empirical support that the ability to avoid losses, measured by the ratio of loss provisions, may act as such a strategic variable. A likely interpretation is that borrowers use high-quality low-loss banks to signal their creditworthiness to other stakeholders. This supports the hypothesis that high-quality banks serve as certifiers for their borrowers. Furthermore, this suggest that not only lenders and supervisors but also borrowers may discipline banks to avoid losses.
Subjects: 
banking
product differentiation
certification
market discipline
JEL: 
G21
L15
Persistent Identifier of the first edition: 
ISBN: 
82-7553-184-5
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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