Multiple Bank Lending, Creditor Rights, and Information Sharing*

Abstract. Multiple bank lending induces borrowers to take too much debt when creditor rights are poorly protected; moreover, banks wish to engage in opportunistic lending at their competitors ’ expenses if borrowers ’ collateral is sufficiently risky. These incentives lead to credit rationing and positive-profit interest rates, possibly exceeding the monopoly level. If banks share information about past debts and seniority via credit reporting systems, the incentive to overborrow is mitigated: interest and default rates decrease; credit access improves if the value of collateral is not very volatile, but worsens otherwise. Recent em-pirical studies report evidence consistent with these predictions. The article also shows that private and social incentives to share information are not necessarily aligned. JEL Classification: D73, K21, K42, L51 1