presence of foreign lenders raises competition, reduces domestic lenders profits and hence reduces domestic lenders capital … supply (competition effect). Two different cases are then possible. If foreign lenders are able, in spite of the collateral … competition on the capital market), then the economy benefits at the steady state both from a large capital supply and a low cost …

(i) the individual probability of the liquidity shock is lower, (ii) ex ante competition between banks on illiquid long …