Template-Type: ReDIF-Paper 1.0
Author-Name:José Renato Haas Ornelas
Author-X-Name-First: José Renato 
Author-X-Name-Last: Haas Ornelas
Author-Name: Marcos Soares da Silva
Author-X-Name-First: Marcos 
Author-X-Name-Last: Soares da Silva
Author-Name: Bernardus F Nazar Van Doornik
Author-X-Name-First: Bernardus F 
Author-X-Name-Last: Nazar Van Doornik
Title: Informational switching costs, bank competition, and the cost of finance
Abstract: This paper studies the links between competition in the lending market and spreads of bank loans in Brazil. Evidence from a dataset of more than 13 million loan-level observations from private banks shows a positive relationship between market power, measured by the Lerner index, and the cost of finance, measured by loan spreads over the treasury curve. Furthermore, there is evidence of the holdup problem, originating from informational switching costs faced by firms. Private banks engage in a strategy of first competing fiercely for clients by offering a lower loan interest rate and later increasing interest rates as the bank-firm relationship duration increases. Both results are stronger for micro and small firms than for medium and large firms.
Length: 51 pages
Creation-Date: 2022-01
File-URL: https://www.bis.org/publ/work990.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work990.htm
File-Format: text/html
Number: 990
Keywords: banking, Competition, switching costs, information asymmetry, holdup problem, lock-in.
Classification-JEL: D43, G21, L10, L14
Handle: RePEc:bis:biswps:990