Foreign Entry and Multi-Period Bank Competition Based on Collateral View ()
ABSTRACT
This paper constructs the multi-period model
of spatial bank competition between the local bank and the foreign bank with financing
cost (efficiency) advantage, the results show that: 1) when the amount of the
high risk borrowers in the marker reaches a threshold, both banks will use
collateral as screening device to distinguish different risk borrowers, only
low risk borrowers will borrow money from the bank; 2) the space distance (production
differentiation) can help local bank confront the foreign bank’s cost (efficiency) advantage. Further
comparative static analysis shows: the bank’s profit decreases with its financing
cost, and the bank will require higher loan rate and less collateral with its
financing cost increasing; Decreasing transaction cost and better legal
environment will facilitate the bank to require more collateral and lower loan
rate.
Share and Cite:
Chen, X. (2013). Foreign Entry and Multi-Period Bank Competition Based on Collateral View.
Journal of Financial Risk Management, 2, 1-9. doi:
10.4236/jfrm.2013.21001.