Financial specialization, bank opacity, and the structure of credit markets

Araujo, Luis and Minetti, Raoul and Moherdaui, Gustavo and Tomarchio, Alessandro (2025): Financial specialization, bank opacity, and the structure of credit markets.

Abstract

Financial specialization shapes the impact of financial institutions on the real economy. We study the determinants and real sector consequences of banks’ specialization in an economy where banks’ access to liquidity depends on investors’ information on the quality of banks’ assets. When choosing their sectoral specialization, banks trade off the benefits of sectoral expertise on borrowers’ investments with the incentive to maintain opacity on shocks to loan portfolios. The model generates a distribution of banks by size and specialization in which small banks specialize more, and lend to more informationally opaque firms, than larger banks. We show that regulations that promote financial disclosure enhance banks’ specialization, increasing welfare, while bank size regulations can distort banks’ specialization downward. The predictions of the model are consistent with evidence from granular matched bank-firm data from Peru.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Specialization, Banking Structure, Information, Shocks, Financial Regulation
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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