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Financial Development

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 403
Hosted By: Society for the Study of Emerging Markets
  • Chair: Ali M. Kutan, Southern Illinois University-Edwardsville

The Effects of Information on Credit Market Competition: Evidence from Credit Cards

Andres Liberman
,
New York University
Fritz Foley
,
Harvard Business School
Agustin Hurtado
,
University of Chicago
Alberto Sepulveda
,
Superintendency of Banks and Financial Institutions (SBIF)-Chile

Abstract

We investigate the effect of credit information on credit market competition. We first show theoretically how public credit information leads to more credit to borrowers in good standing but less credit to new, relatively riskier borrowers without credit histories. We test the predictions of our model using individual by lender level data for the universe of credit card borrowers in Chile. We compare the initial credit card contracts offered by banks, which share their borrowers' credit histories through credit bureaus, with non-bank issuers, which only share information about borrowers who default and are thus privately informed about their own borrowers who are not in default. Consistent with the predictions of the model, non-bank issuers lend lower amounts to riskier borrowers and increase limits over time, while banks lend higher amounts to safer borrowers. To identify the causal effect of information sharing on ex post competition, we exploit a natural experiment where a non-bank lender's credit card portfolio was sold to a bank. After the transaction, the lender's borrowers receive higher credit limits from other banks. The lender responds by increasing credit limits to existing borrowers and shifts to originating new cards with higher limits to observably safer borrowers. Our results imply that public credit information increases competition but can hinder financial inclusion.

Winners and Losers from Interest Rate Ceilings: Quasi-experimental Evidence from Chile

Sergio L. Schmukler
,
World Bank
José Tessada
,
Catholic University of Chile
Cristian Vasquez
,
Catholic University of Chile
Mario Vera
,
Superintendency of Banks and Financial Institutions (SBIF)-Chile

Abstract

This paper exploits a natural experiment in Chile, using the introduction a new anti-usury law that significantly reduced the maximum rate allowed for credit operations. We explore the impact that this regulatory change had on the market for consumption loans, credit cards, and credit lines and on banks. We use unique administrative records covering all credit operations generated by the universe of banks, credit applications, and accounting information. The evidence shows that, on impact, the regulatory changes led to a significant reduction in the interest rates charged to consumers, as the existing products were repriced. Most of the action come from a compression of the observed rates at the top of the distribution. While part of the consumers remained as bank customers with lower rates, others disappeared from the banking system. The main losers from the new law were riskier borrowers that became de-bancarized and banks that reduced their activity in lower income segments. The main winners were lower risk clients and existing clients for which banks had better information.

FinTech Credit and Service Quality

Yi Huang
,
Graduate Institute of International and Development Studies
Chen Lin
,
University of Hong Kong
Zixia Sheng
,
Ant Financial Services Group
Lai Wei
,
Lingnan University

Abstract

Using millions of online merchants and a fuzzy discontinuity rule in FinTech credit allocation, the paper identifies a causal effect of credit access on the service quality of small businesses. We find that access to credit incentivizes firms to provide better services as measured by detailed seller ratings contributed by customers. Additional results show that the positive effect is significantly larger for firms in more competitive industries, and there is not substitution effect between bank credit and FinTech credit in funding service quality investment. We also find that access to credit helps firms recover from natural hazards and improves their resilience to operational shocks.

Specialization in Bank Lending: Evidence from Exporting Firms

Daniel Paravisini
,
London School of Economics
Veronica Rappoport
,
London School of Economics
Philipp Schnabl
,
New York University

Abstract

We develop an empirical approach for identifying specialization in bank lending using granular data on borrower activities. We illustrate the approach by characterizing bank specialization by export market, combining bank, loan, and export data for all firms in Peru. We find that all banks specialize in at least one export market, that specialization affects a firm’s choice of new lenders and how to finance exports, and that credit supply shocks disproportionately affect a firm’s exports to markets where the lender specializes in. Thus, bank market-specific specialization makes credit difficult to substitute, with consequences for competition in credit markets and the transmission of credit shocks to the economy.
Discussant(s)
Gonzalo Maturana
,
Emory University
Wenlan Qian
,
National University of Singapore
Francesco D'Acunto
,
Boston College
George Pennacchi
,
University of Illinois
JEL Classifications
  • O1 - Economic Development
  • F3 - International Finance