DP2936 | Borrower Poaching and Information Display in Credit Markets

Publication Date

03/09/2001

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiatives to stimulate financial integration. These initiatives allow new entrants to ?poach? the incumbents' clients by offering them attractive loan offers. We show that these deregulations may be insufficient since asymmetric information seriously hampers the integration of credit markets. This asymmetry stems from the informational advantage incumbent banks have about their current clients vis-a-vis potential entrants. Moreover, banks may strategically display some information, hindering entry when asymmetric information is moderate. We also show that voluntary information sharing emerges only when asymmetric information is low.