Can Technology Undermine Macroprudential Regulation? Evidence from Online Marketplace Credit in China
56 Pages Posted: 24 Apr 2017 Last revised: 1 Apr 2020
Date Written: March 31, 2020
We study marketplace credit around a tightening of mortgage loan-to-value (LTV) caps in several cities in China in 2013. Using novel micro data covering all loans and loan applications at a leading marketplace credit platform, we provide evidence consistent with home buyers borrowing online to bypass the tighter LTV cap. Lenders fail to adjust the loan terms, despite the fact that loans attributable to the regulatory arbitrage exhibit ex post higher default rates. These findings suggest that the development of new financial intermediaries can open up 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
Suggested Citation: Suggested Citation