Sharing of information among banks. When is full-list a good thing?
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The author sets out to prove that so-called full-list sharing of client information is the optimum course for banks acting rationally on an infinite time-scale, i.e. the one to yield the highest profit, in cases where the proportion of bad risks in the banking population is high, the good risks are decreasingly likely to repay their loans, and banks operate at significantly different marginal costs. Further preconditions for the advantages of full list are that each bank share its full client information and the information be reliable. However, where the proportion of bad risks is low or there is little difference in the banks' marginal costs, the dominant strategy will be for banks to refrain from sharing their client information. But both full information sharing and absence of information sharing are less favourable for good risks who service their loans on time than the so-called negative list, because in the former cases they pay a higher rate of interest than they would with negative sharing of information.
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