Multiple Bank Lending, Creditor Rights and Information Sharing

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 posit ive-profit interest rates, possibly exce eding the monopoly level. If banks share information about past debts and seniority vi a credit reporting systems, the incentive to overborrow is mitigated: interest and default rates decrease; credit access improves if the value of co llateral is not very volatile, but worsens otherwise. Recent empirical studies report evidence consist ent with these predictions. The paper also shows that private and social incentives to share information are not necessarily aligned. JEL classification : D73, K21, K42, L5