A Tale of Two Markets: Labor Market Mobility and Bank Information Sharing

Abstract

We develop a theory of bank information sharing, highlighting the interactions between credit and labor markets. A better-informed relationship bank competes with a less informed foreign bank for borrowers under asymmetric information about borrowers' creditworthiness. Credit market competition triggers competition for the relationship bank's loan officers, who possess valuable information about the borrowers' creditworthiness. The relationship bank can share credit information to soften the labor market competition, despite intensifying the credit market competition. When labor market mobility is moderate, information sharing emerges as the optimal strategy of the relationship bank.