Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis

99 Pages Posted: 20 Apr 2021 Last revised: 29 Apr 2022

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Teng Wang

Board of Governors of the Federal Reserve System

Date Written: April 7, 2022

Abstract

We investigate bank relationships in a rarely-considered context – consumer and small business credit card customers. Using over one million accounts, we find during normal times, consumer relationship customers enjoy better credit terms, consistent with the bright side of relationships, while the dark side dominates for small businesses. During COVID-19, both groups benefit, reflecting intertemporal smoothing, with more benefits flowing to safer relationship customers. Conventional banking relationships benefit consumers more than credit card relationships, with mixed findings for small businesses. Important identification issues are addressed. CARES Act consumer-delinquency reporting impediments reduce the informational value of consumer credit scores, penalizing safer borrowers.

Keywords: Credit cards, household finance, consumers, small businesses, relationship lending, banks, credit terms, cross-sectional smoothing, financial crises, COVID-19, intertemporal smoothing

JEL Classification: D12, G01, G20, G28

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S. and Norden, Lars and Roman, Raluca A. and Udell, Gregory F. and Wang, Teng, Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=3829240 or http://dx.doi.org/10.2139/ssrn.3829240

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene St.
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Raluca A. Roman (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Teng Wang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
278
Abstract Views
1,496
rank
161,077
PlumX Metrics