Flight to Quality or to Captivity? Information and Credit Allocation

by Giovanni Dell'ariccia

Asymmetric information makes bank credit special. The superior nature of the information exchanged over the course of a lending relationship generates a bank-client specificity, to the extent that such information cannot be communicated credibly to outsiders. This informational specificity is likely to vary across segments of the market and depends on borrowers' relative ability to signal their quality to outside lenders and banks' ability to gather special information about their clients.

27 pages, Kindle Edition

First published February 1, 2001