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)