Show Me Yours and I'll Show You Mine: Sharing Borrower Information in a Competitive Credit Market

CentER Discussion Paper Series No. 2015-027

European Banking Center Discussion Paper No. 2015-007

52 Pages Posted: 29 Apr 2015

See all articles by Jaap W.B. Bos

Jaap W.B. Bos

Maastricht University

Ralph De Haas

European Bank for Reconstruction and Development; Centre for Economic Policy Research (CEPR); KU Leuven

Matteo Millone

VU University Amsterdam - Department of Finance and Financial Sector Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2015

Abstract

We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information — especially positive borrower information from the new registry — and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.

Keywords: Information sharing, credit market competition, hazard models

JEL Classification: D04, D82, G21, G28

Suggested Citation

Bos, Jaap W.B. and De Haas, Ralph and Millone, Matteo, Show Me Yours and I'll Show You Mine: Sharing Borrower Information in a Competitive Credit Market (April 28, 2015). CentER Discussion Paper Series No. 2015-027, European Banking Center Discussion Paper No. 2015-007, Available at SSRN: https://ssrn.com/abstract=2599993 or http://dx.doi.org/10.2139/ssrn.2599993

Jaap W.B. Bos (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

Ralph De Haas

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom

HOME PAGE: www.ebrd.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

KU Leuven

Naamsestraat 69
Leuven, B-3000
Belgium

Matteo Millone

VU University Amsterdam - Department of Finance and Financial Sector Management ( email )

De Boelelaan 1105
NL-1081HV Amsterdam
Netherlands

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