This paper presents a model of bank risk taking and government guarantees. Levered banks take excessive risk, as their actions are not fully priced at the margin by debt holders. The impact of government guarantees on bank risk taking depends critically on the portion of bank investors that can...

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

This paper shows that competition among regulators reduces regulatory standards relative to a centralized solution. It suggests that a central regulator is more likely to emerge for homogeneous and financially integrated countries. The paper proves these results in a model where regulators...

We analyze the incentives for independent domestic bank regulators to form a regulatory union when their jurisdictions are financially integrated. Because of externalities in bank regulation, competition among regulators reduces regulatory standards relative to the Pareto optimum, making the...

Private information obtained by lenders leads to borrowercapture to the extent that such information cannot be communicated credibly to outsiders. We analyze how this capture affects the loan portfolio allocation of informed lenders. First, we show that banks charge higher interest rates and...

Banks offering credit to borrowers are faced with uncertainty about their creditworthiness. If banks obtain information about borrowers after lending to them, they are able to reject riskier borrowers when refinancing. Potential entrant banks will face an adverse-selection problem stemming from...

This paper identifies different sources of risk as important determinants of banks' corporate structures when expanding into new markets. Subsidiary-based corporate structures benefit from greater protection against economic risk because of affiliate-level limited liability, but are more exposed...

The superior nature of the information exchanged over the course of a lending relationship generates a bank-client specificity to the extent that such information cannot be communicated credibly to outsiders. Consequently, banks obtain higher profits from more captured borrowers than from...

We present an analysis of competition under asymmetric information where prices react asymmetrically to changes in firms' marginal costs. When one firm has private information about some customers, an increase in an uninformed firm's marginal cost leads to a price increase, as usual. However, an...