Information asymmetry between banks, rent extraction, and switching in mortgage lending

Abstract

This study explores how banks compete for a mortgage following different information about the same client. We employ inside information about a bank's clients and the information available to an outside bank making a competing offer for 13,080 individual mortgage clients in Norway from 2010 to 2018. We demonstrate that disentangling the effects of the duration of the client‒bank relationship and the asymmetric information between banks bridges a gap in the existing literature. The inside bank is less sensitive to negative external information and extracts rent based on the length of the client‒bank relationship.