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Keywords:

  • D62;
  • D82;
  • G21
  • banks;
  • asymmetric information;
  • externalities

This paper adds endogenous screening to Broecker (1990) and shows the possibility of multiple screening equilibria. A high intensity of screening by a bank decreases average quality of firms applying to other banks, which in turn have further incentives to screen. The link between the degree of concentration of the banking industry and the extension of credit is also discussed.