Piercing Through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses During Normal Times and the Covid-19 Crisis
77 Pages Posted: 2 Jun 2021 Last revised: 18 Jun 2022
Date Written: May, 2021
We investigate bank relationships in a rarely considered context – consumer and small business credit cards. Using over one million accounts, we find during normal times, consumer relationship customers enjoy relatively favorable credit terms, consistent with the bright side of relationships, while the dark side dominates for small businesses. During the COVID-19 crisis, 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. The Coronavirus Aid, Relief, and Economic Security (CARES) Act consumer-delinquency reporting impediments reduce the informational value of consumer credit scores, penalizing safer borrowers.
Keywords: Credit cards, household finances, consumers, small businesses, relationship lending, banks
JEL Classification: D12, G01, G20, G28
Suggested Citation: Suggested Citation