Faculty of Economics and Business Administration Publications Database

Cross-Selling Lending and Underwriting: Scope Economies and Incentives

Laux, Christian
Volume: 13
Number: 2
Pages: 341 - 367
Month: April
ISSN-Print: 1572-3097
Link External Source: Online Version
Year: 2009

We highlight the implications of combining underwriting services and lending for the choice of underwriters and for competition in the underwriting business. We show that cross-selling can increase underwriters'' incentives, and we explain three phenomena: first, that cross-selling is important for universal banks to enter the investment banking business; second, that cross-selling is particularly attractive for highly leveraged borrowers; third, that less-than-market rates are no prerequisite for cross-selling to benefit a bank''s clients. In our model, cross-selling reduces rents in the underwriting business.