Can Technology Undermine Macroprudential Regulation? Evidence from Peer-to-Peer Credit in China

44 Pages Posted: 5 Feb 2018

See all articles by Fabio Braggion

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management; Tilburg University - European Banking Center

Alberto Manconi

Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Haikun Zhu

Erasmus University Rotterdam

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

We study whether and to what extent peer-to-peer (P2P) credit helps circumvent loan-to-value (LTV) caps, a key macroprudential tool to contain household leverage. We exploit the tightening of mortgage LTV caps in a number of cities in China in 2013 as our testing ground, in a difference-in-differences setting, and we base our tests on a novel, hand-collected database covering all lending transactions at RenrenDai, a leading Chinese P2P credit platform. P2P loans increase at the cities affected by the LTV cap tightening relative to the control cities, consistent with borrowers tapping P2P credit to circumvent the regulation. The granularity of our data allows us to separate credit demand from credit supply effects, with a fixed effects strategy. Our results also indicate that P2P lenders do not adjust their pricing and screening to the influx of new borrowers after 2013, despite the fact that their loans ex post have higher delinquency and default rates. Symmetric effects are associated with a loosening of mortgage LTV caps in 2015. Our test provides empirical evidence on the capacity of P2P credit to undermine LTV caps. More broadly, our analysis informs the debate on the challenges posed by the interaction between FinTech and credit regulation.

Keywords: peer-to-peer credit; household leverage; macroprudential regulation; loan-to-value caps

JEL Classification: G01, G23, G28

Suggested Citation

Braggion, Fabio and Manconi, Alberto and Zhu, Haikun, Can Technology Undermine Macroprudential Regulation? Evidence from Peer-to-Peer Credit in China (January 2018). CEPR Discussion Paper No. DP12668. Available at SSRN: https://ssrn.com/abstract=3118316

Fabio Braggion (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Alberto Manconi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/albertomanconi/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Haikun Zhu

Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://https://sites.google.com/site/zhuhaikun2018/home

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