This paper examines how the informational structure of loan markets interacts with banks’ strategic behaviour in determining lending standards, lending volumes, and the aggregate allocation of credit. In a setting where banks obtain private information about their clients’ creditworthiness,...

The recent global financial crisis has ignited a debate on whether easy monetary conditions can lead to greater bank risk-taking. We study this issue in a model of leveraged financial intermediaries that endogenously choose the riskiness of their portfolios. When banks can adjust their capital...