Information Sharing on the Norwegian Credit Market

Abstract

Norwegian legislation prevents banks from sharing speci c kinds of information that might have been used to better predict the creditworthiness of their customers. We construct a simple market participation model to describe how good methods of estimating default risk is likely to result in increased customer surplus and more fair, e ective credit allocation. We use a game theory-framework to describe why these gains can only be realized if these estimations can be shared with other banks, as the customer will otherwise be able to reset his or her risk assessment by switching banks. We propose and evaluate three possible implementations, and remark that our analysis suggests that the full gains of improved risk assessment that is introduced with CRD IV and Basel III cannot necessarily be realized without changes in the banks ability to share information about their customers. Our results are sensitive to assumptions about price competition between banks, ratio- nality of customers and distribution of default probabilities.