The Effects of Competition in Consumer Credit Market

60 Pages Posted: 27 Aug 2019

See all articles by Stefan Gissler

Stefan Gissler

Board of Governors of the Federal Reserve System

Rodney Ramcharan

University of Southern California, Marshall School of Business

Edison Yu

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 3 versions of this paper

Date Written: August 2019

Abstract

This paper finds that banks and non-banks respond differently to increased competition in consumer credit markets. Increased competition and the greater threat of failure induces banks to specialize more in relationship business lending, and surviving banks are more profitable. However, non-banks change their credit policy when faced with more competition and expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the effects of competition depend on the form of intermediation. They also suggest that increased competition can cause credit risk to migrate outside the traditional supervisory umbrella.

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Suggested Citation

Gissler, Stefan and Ramcharan, Rodney and Yu, Edison, The Effects of Competition in Consumer Credit Market (August 2019). NBER Working Paper No. w26183. Available at SSRN: https://ssrn.com/abstract=3442724

Stefan Gissler (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

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Los Angeles, CA 90089
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HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

Edison Yu

Federal Reserve Bank of Philadelphia ( email )

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Philadelphia, PA 19106-1574
United States

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