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
Cite this paper
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
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