Description
discussing why banks may voluntarily participate in information sharing despite their reduced monopolistic power
? Provide example and facts that support to your essay. Don't exceed 1500 words include reference, the reference using Harvard format.
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Explanation & Answer
Please find attached. The assignment required me not to exceed 1500 words please check the word count and let me know if you okay with it. Feel free to ask for clarifications. Thank you.
Outline
Introduction
Body
Conclusion
References
Banks Information Sharing Scheme 1
BANK INFORMATION SHARING SCHEME
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Banks Information Sharing Scheme 2
Word count 1291
Bank Information Sharing Scheme
Introduction
Information sharing about the credit history of the borrowers is the role of many banks
over the years. However, this role affects the functioning of the bank as it can increase or reduce
the lending rate. The information shared that gives a picture of bad borrowers who do not pay
back the debt can make many borrowers shy away from taking loans from the banks (Agarwal et
al., 2018). Even though it restraints the borrowers and lessens the share of bad loans, a bank may
lose its competitive gain in the market. Despite this, a bank cannot reject to partake in sharing of
information as it has many advantages compared to risks associated with it. This essay will focus
on the reasons why banks may voluntarily participate in information sharing despite their
reduced monopolistic power.
Reduction of associated with loans
Sharing information about the borrowers helps the bank to reduce the risks associated
with loans and increase the expected profit. The banks in lending aim to earn profits from the
interest paid by borrowers (Gilje, Loutskina, and Strahan, 2016: 1159-1184). Giving loans to bad
debtors makes the company loses much money as these people may refuse to pay the whole
amount or settle the debts partially. Sharing information helps the bank to know whom to loan to
for them to be assured of the exact amount to get from the loan. This will assist them in meeting
their objectives as they can plan with i...
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