Bank Misconduct and Online Lending

Journal of Banking and Finance, Vol. 116, July 2020

Sveriges Riksbank, Working Paper Series, November 2017

63 Pages Posted: 6 Jan 2021 Last revised: 8 Jan 2021

See all articles by Christoph Bertsch

Christoph Bertsch

Sveriges Riksbank - Research Division

Isaiah Hull

Sveriges Riksbank - Research Division

Yingjie Qi

Copenhagen Business School

Xin Zhang

Sveriges Riksbank - Research Division

Date Written: November 1, 2017

Abstract

We introduce a high quality proxy for bank misconduct that is constructed from Consumer Financial Protection Bureau (CFPB) complaint data. We employ this proxy to measure the impact of bank misconduct on the expansion of online lending in the United States. Using nearly complete loan and application data from the online lending market, we demonstrate that bank misconduct is associated with a statistically and economically significant increase in online lending demand at the state and county levels. This result is robust to the inclusion of bank credit supply shocks and holds for both broader and more narrowly-defined bank misconduct measures. Furthermore, we show that this effect is strongest for lower rated borrowers and weakest in states with high levels of generalized trust.

Keywords: Financial development, Consumer loans, Bank misconduct, FinTech

JEL Classification: A13, G00, G21, K00

Suggested Citation

Bertsch, Christoph and Hull, Isaiah and Qi, Yingjie and Zhang, Xin, Bank Misconduct and Online Lending (November 1, 2017). Journal of Banking and Finance, Vol. 116, July 2020, Sveriges Riksbank, Working Paper Series, November 2017, Available at SSRN: https://ssrn.com/abstract=3747245

Christoph Bertsch

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Isaiah Hull (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Yingjie Qi

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Xin Zhang

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

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