Norges Bank

Working Paper

Risk-based pricing in competitive lending markets

Author:
Carola Müller, Ragnar Juelsrud and Henrik Andersen
Series:
Working Paper
Number:
19/2021

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.

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ISSN 1502-8190 (online)

Published 22 December 2021 10:06
Published 22 December 2021 10:06