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...

We analyze the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. In the process of lending, incumbent banks gather proprietary information about their clients, acquiring an advantage over potential entrants. We...

We analyze the effects of informational asymmetries on the market structure of the banking industry in a multi-period model of spatial competition. Lenders always face uncertainty about borrowers' creditworthiness. However, in the process of lending, incumbent banks gather proprietary...

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 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...

We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms use less tangible capital and invest more in intangible assets. We show that, as firms shift toward intangible assets that have lower collateral values, banks reallocate their...

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...

This paper links the current sub-prime mortgage crisis to a decline in lending standards associated with the rapid expansion of this market. We show that lending standards declined more in areas that experienced larger credit booms and house price increases. We also find that the underlying...