Information Sharing on the Norwegian Credit Market

Page 1

Information Sharing on the Norwegian Credit Market Eivind H. Gimse & HËš avar T. Moen Bergen, Spring 2015

Supervisor: Svein-Arne Persson Master Thesis in Economic Analysis Norwegian School of Economics

Abstract Norwegian legislation prevents banks from sharing specific kinds of information that might have been used to better predict the creditworthiness of their customers. We construct a simple market participation model to describe how good methods of estimating default risk is likely to result in increased customer surplus and more fair, effective credit allocation. We use a game theory-framework to describe why these gains can only be realized if these estimations can be shared with other banks, as the customer will otherwise be able to reset his or her risk assessment by switching banks. We propose and evaluate three possible implementations, and remark that our analysis suggests that the full gains of improved risk assessment that is introduced with CRD IV and Basel III cannot necessarily be realized without changes in the banks ability to share information about their customers. Our results are sensitive to assumptions about price competition between banks, rationality of customers and distribution of default probabilities.

This thesis was written as a part of the Master of Science in Economics and Business Administration at NHH. Please note that neither the institution nor the examiners are responsible - through the approval of this thesis - for the theories and methods used, or results and conclusions drawn in this work.

1


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.