- Peer-to-Peer Lenders Versus Banks: Substitutes or Complements? 2018, Review of Financial Studies (forthcoming) [Slides]
Presentation: EFA 2018, SIF 2018, CICF 2018, ACPR Systemic Risk Workshop, RFS FinTech Workshops (Columbia, 2017; Cornell Tech, 2018), HEC Brownbag, AMES 2017, Tsinghua PBC School of Finance, EEA-ESEM 2017, ACDD 2017
Abstract: This paper studies whether, in the consumer credit market, peer-to-peer (P2P) lending platforms serve as substitutes for banks or instead as complements. I develop a conceptual framework and derive testable predictions to distinguish between these two possibilities. Using a regulatory change as an exogenous shock to bank credit supply, I find that P2P lending is a substitute for bank lending in terms of serving infra-marginal bank borrowers yet complements bank lending with respect to small loans. These results indicate that the credit expansion resulting from P2P lending likely occurs only among borrowers who already have access to bank credit.
Abstract: This paper investigates the role of banks in propagating the negative effects of large corporate bankruptcies to the real economy. Using manually-linked data, we find that banks which suffer from large-scale bankruptcies on their loan portfolio increase loan spreads in subsequent commercial lending, and decrease credit supply to small businesses. Importantly, the later effect is present not only in counties with subsidiaries of bankrupt corporates (bankruptcy counties), but also in other counties (non-bankruptcy counties). This reduction in credit supply subsequently translates into a decrease in the number of establishments and an increase in local bankruptcy filings. Overall, our findings suggest that banks play an important role in disseminating microeconomic shocks.