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Abstract
While competition constrains the ability of banks to extract informational rents from lend in relationships, their informational monopoly also curtails competition through the threat of adverse selection. To analyze an intermediary's optimal strategic response to these opposing acts we specify a model where the severity of asymmetric information between banks and borrowers increases with informational distance. Intermediaries acquire expertise in a specicsector and exert sort in building lending relationship beyond their core business. They then compete with each other in transaction and relationship loan markets where they dierentiatetheir loan ores in terms of informational location. As increased competition endogenously erodes informational rents intermediaries shift more resources to building relationships in their core markets. This retrenchment from peripheral loan segments permits banks to fend othecompetitive threat to their captive market. Outside their core segment they ore transactional loans. In equilibrium, both forms of debt compete with each other but intermediaries specialize in a core market with relationship banking.

1 Introduction
Two broad trends characterize the recent evolution of commercial banking. While the industry has consolidated both within and across economies at a rapid pace, competition has also sharply increased. Indeed, one of the most cited driving forces behind the rapid consolidation in banking are the competitive pressures exerted by products and services that are close substitutes. Investment banks, mutual funds, Insurance companies, and private investment vehicles have all started to compete for the core business of commercial banks: making loans and collecting deposits. These trends beg the question of how increased competition acts the nature of facial intermediation and, in particular, the relationship between banks and borrowers. Although the emerging nancialconglomerates have become more distant from their customers in their pursuit of economies of scale or scope, intermediaries also have an incentive to seek closer ties with borrowers to fend othecompetition. In this paper we investigate how competition and informational asymmetries interact to shape facial intermediation and loan markets. Financial intermediaries arise from the need to overcome the consequences of informational asymmetries between lenders and borrowers.1 In their attempt to do so, they specialize in information production that allows them to appropriate part or all of the gains from informed intermediation.2 Furthermore, such information about borrower quality is often relation-specie so that certain banks enjoy an information-induced competitive advantage. While competition for borrowers tends to erode informational rents and relationship value, it is hindered by an adverse selection problem, which is at the root of the monopolistic nature of facial intermediation. In the sequel, we seek to clarify how banks respond to increasing competitive pressures in terms of relationship building, what lending strategies they follow, how they dierentiate markets according to lendingmodes, 3 and how they allocate investments between core and peripheral markets.
Our analysis starts from the observation that the importance of informational asymmetries between banks and borrowers depends on the nature of the lending relationship and the bank’s expert本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。