VoxEU Column
by Jin Cao, Emilia Garcia-Appendini, Cédric Huylebroek
Incumbent banks often maintain an informational monopoly over their borrowers, making it difficult to switch to competing lenders or negotiate better terms. This column argues that deposit relationships could be a solution, thereby contributing to more competitive lending markets. It shows that firms with deposit relationships at competing banks are significantly more likely to switch lenders. In turn, banks offer better loan terms to firms that maintained a deposit account with them. The findings have implications for current policy initiatives, such as open banking and data sharing, deposit market reform, and competition policy.
Link:
VoxEU Column: Breaking banks’ information monopoly: The case for deposit data sharing