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Credit Registries, Relationship Banking and Loan Repayment

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  • Martin Brown
  • Christian Zehnder

Abstract

This paper examines the impact of a public credit registry on the repayment behavior of borrowers. We implement an experimental credit market in which loan repayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted for two market environments: first a market in which interactions between borrowers and lenders are one-off, and, second, a market in which borrowers and lenders can choose to trade repeatedly with each other. In the market with one-off interactions the credit market collapses without a credit registry as lenders rightly fear that borrowers will default. The introduction of a registry in this environment significantly raises repayment rates and the credit volume extende by lenders. In the market where repeat transactions are possible a credit registry is not necessary to sustain high market performance. In such an environment relationship banking enforces repayment even when lenders cannot share information, so that there is little value added of a public credit registry.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 240.

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Date of creation: May 2005
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Handle: RePEc:zur:iewwpx:240

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Keywords: Credit Market; Information Sharing; Relationship Banking;

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References

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Citations

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Cited by:
  1. Irenaeus Wolff & J. Philipp Reiss, 2012. "Incentive Effects of Funding Contracts: An Experiment," TWI Research Paper Series, Thurgauer Wirtschaftsinstitut, Universität Konstanz 78, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  2. Björn Bartling & Ernst Fehr & Klaus M. Schmidt, 2010. "Screening, competition, and job design: economic origins of good jobs," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 470, Institute for Empirical Research in Economics - University of Zurich.
  3. Singer, Tania & Fehr, Ernst, 2005. "The Neuroeconomics of Mind Reading and Empathy," IZA Discussion Papers 1647, Institute for the Study of Labor (IZA).
  4. Schram, Arthur & Brandts, Jordi & Gërxhani, Klarita, 2010. "Information, bilateral negotiations, and worker recruitment," European Economic Review, Elsevier, Elsevier, vol. 54(8), pages 1035-1058, November.
  5. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundations of Trust and Social Preferences," IZA Discussion Papers 1641, Institute for the Study of Labor (IZA).
  6. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5115, C.E.P.R. Discussion Papers.

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