Crowding Out Banks: Credit Substitution by Peer-To-Peer Lending

66 Pages Posted: 18 Jul 2017 Last revised: 4 Sep 2019

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Brian Wolfe

State University of New York (SUNY) at Buffalo

Woongsun Yoo

Saginaw Valley State University

Date Written: March 30, 2018

Abstract

Through superior technology, financial technology (FinTech) firms may expand credit markets. Alternatively, consumers may substitute one credit provider for another, generating adverse selection problems for incumbent lenders. We analyze the unsecured consumer loan market and identify the influence of FinTech lending on commercial banks using a novel approach that takes advantage of regulatory restrictions for FinTech borrowers and investors. We show that high-risk FinTech loans substitute for bank loans while low-risk loans may be credit expansionary. However, the influence on banks is heterogeneous. Our results highlight the changing landscape of financial intermediation and the regulatory challenges faced by FinTech firms.

Keywords: Financial Intermediation, Banking, Peer-To-Peer Lending, FinTech, Marketplace Lending, Crowdfunding, Security Registration

JEL Classification: G21, G23, L81, D53, G28

Suggested Citation

Cornaggia, Jess and Wolfe, Brian and Yoo, Woongsun, Crowding Out Banks: Credit Substitution by Peer-To-Peer Lending (March 30, 2018). Available at SSRN: https://ssrn.com/abstract=3000593 or http://dx.doi.org/10.2139/ssrn.3000593

Jess Cornaggia

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Brian Wolfe (Contact Author)

State University of New York (SUNY) at Buffalo ( email )

264 Jacobs Management Center
Buffalo, NY 14228
United States
7166453260 (Phone)

Woongsun Yoo

Saginaw Valley State University ( email )

309 Curtiss Hall
7400 Bay Road
University Center, MI 48710-0001
United States
(989) 964-7005 (Phone)

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