Information Sharing and Cross-Border Entry in European Banking

Information asymmetries can severely limit the cross-border border expansion of banks, if entering banks can only obtain incomplete information about potential new clients. Such asymmetries are reduced by credit registers, which distribute financial data on bank clients.

This ECRI research report investigates the interaction of credit registers and bank entry modes (in the form of branching as well as mergers and acquisitions) by using a new set of time-series cross-section data for the EU-27 countries. We study how the presence of public and private credit registers and the kind of information exchanged affected the modes of bank entries during the period 1990–2007. Our analysis shows that the existence of both types of registers increases the share of branching among the overall bank entries. Additionally, the establishment of public registers reduces concentration ratios and some banking competition indicators (such as overhead costs/assets). The introduction of a private credit bureau, on the other hand, has no effect on concentration ratios, but positively contributes to competition (by cutting interest rate margins). These findings suggest that credit registers facilitate the direct entry of banks through a reduction of information asymmetries, which in turn intensifies competition.