In the business loan market, for example, the smallest banks do not directly compete with the banks that will be required to adopt A-IRB. Small banks' close ties to local communities afford them substantial information advantages over larger banks. As a result, they tend to focus on relationship lending to small businesses and individuals.
The conduct of monetary policy becomes even more complicated if inflation persistence in a monetary union differs across member states. Benigno and Lopez-Salido (2002) analyze the effect of different policy rules under such circumstances.