P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?
72 Pages Posted: 8 May 2018 Last revised: 9 May 2019
Date Written: April 24, 2019
We derive three testable predictions from a bank-P2P lender model of competition: (i) P2P lending grows when some banks are faced with exogenously higher regulatory costs, (ii) P2P loans are riskier than bank loans; and (iii) the risk-adjusted interest rates on P2P-loans are lower than those on bank loans. We confront these predictions with data on P2P loans and the consumer bank credit market in Germany and find empirical support. Overall, our analysis indicates the P2P lenders are bottom fishing, especially when regulatory shocks create a competitive disadvantage for some banks.
Keywords: P2P lending, bank lending, competition
JEL Classification: G21
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