Household Credit and Regulatory Arbitrage: Evidence from Online Marketplace Lending
64 Pages Posted: 24 Apr 2017 Last revised: 22 Feb 2021
Date Written: February 21, 2021
We study the relationship between new intermediaries and regulatory arbitrage, analyzing marketplace credit around a tightening of mortgage loan-to-value (LTV) caps in several cities in China in 2013. Using novel data covering over 20% of Chinese marketplace credit as well as the universe of loans and loan applications at a leading online lending platform, we provide evidence consistent with home buyers borrowing online to bypass the tighter LTV cap. Our findings point to new, lightly regulated financial intermediaries as a driver of household leverage, suggesting that they can open non-negligible regulatory arbitrage channels.
Keywords: online marketplace credit; household leverage; macroprudential regulation; loan-to-value caps; Chinese financial system.
JEL Classification: G23, G01, G18
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