Séminaire
A smoke screen theory of financial intermediation
Régis Breton (Banque de France and CNRS)
Fédération des Banques Françaises Seminar
TSE, 10 septembre 2012, 12h30–14h00, salle MF 323
Référence
Régis Breton (Banque de France and CNRS), « A smoke screen theory of financial intermediation », Fédération des Banques Françaises Seminar, TSE, 10 septembre 2012, 12h30–14h00, salle MF 323.
Résumé
This paper explores the role of diversification and size in protecting information. We present a simple two period credit market with a sophisticated lender faced with competitors who free ride on his screening activity. Absent commitment problems, the lender funds one borrower and exerts optimal evaluation. When borrowers cannot commit to a long term relationship, the free riding problem is responsible for too little evaluation. We show how this problem can be mitigated by simultaneously financing several borrowers. This effect provides a rationale for intermediaries as an ‘information garbling’ device.
Mots-clés
financial intermediation; informational rent; asymmetric information; free riding; diversification;
Codes JEL
- D82: Asymmetric and Private Information • Mechanism Design
- G00: General
- G21: Banks • Depository Institutions • Micro Finance Institutions • Mortgages
Partenaire de recherche
Fédération des Banques Françaises Research Initiative (sustainable)