Template-Type: ReDIF-Paper 1.0
Author-Name: Henrik Andersen
Author-X-Name-First: Henrik
Author-X-Name-Last: Andersen
Author-Name: Ragnar E Juelsrud
Author-X-Name-First: Ragnar E
Author-X-Name-Last: Juelsrud
Author-Name: Carola Müller  
Author-X-Name-First: Carola
Author-X-Name-Last: Müller
Title: Risk-based pricing in competitive lending markets
Abstract: We use unique relationship-level data which includes banks' private risk assessments of corporate borrowers to quantify how competition among banks affects the risk sensitivity of interest rates in the corporate credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks' own assessment of borrower probability of default and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise values, outlining a novel channel of how the competition-fragility nexus can operate.
Creation-Date: 2024-02
File-URL: https://www.bis.org/publ/work1169.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1169.htm
File-Format: text/html
Number: 1169
Keywords: banking competition, relationship lending, credit markets, risk-based pricing, financial stability
Classification-JEL: G21, G28
Handle: RePEc:bis:biswps:1169