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

See all articles by Allen N. Berger

Allen N. Berger

affiliation not provided to SSRN

Christa Bouwman

Texas A&M University

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: May, 2021

Abstract

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

Berger, Allen N. and Bouwman, Christa 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 (May, 2021). FRB of Philadelphia Working Paper No. 21-19, Available at SSRN: https://ssrn.com/abstract=3855941 or http://dx.doi.org/10.21799/frbp.wp.2021.19

Allen N. Berger (Contact Author)

affiliation not provided to SSRN

No Address Available

Christa Bouwman

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-845-4894 (Phone)

HOME PAGE: http://https://mays.tamu.edu/directory/cbouwman/

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

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

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