Risk-based pricing in competitive lending markets
- Carola Müller, Ragnar Juelsrud and Henrik Andersen
- Working Paper
We use unique data on banks' private risk assessments of corporate borrowers to quantify how competition among banks affect the risk sensitivity of interest rates in the Norwegian credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks' own assessment of borrower risk and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise
values, outlining a novel channel of how the competition-fragility nexus can operate.
Norges Bank’s Working Papers present research projects and reports that are generally not in their final form. Other analyses by Norges Bank’s economists are also included in the series. The views and conclusions in these documents are those of the authors.
ISSN 1502-8143 (online)