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Credit Registries, Relationship Banking and Loan Repayment

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Author Info
Martin Brown
Christian Zehnder

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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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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp240.

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

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Related research
Keywords: Credit Market; Information Sharing; Relationship Banking;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
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  3. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December. [Downloadable!] (restricted)
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  4. Sunder, Shyam, 1992. "Market for Information: Experimental Evidence," Econometrica, Econometric Society, vol. 60(3), pages 667-95, May. [Downloadable!] (restricted)
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  5. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-62, August. [Downloadable!] (restricted)
  6. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October. [Downloadable!] (restricted)
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  8. Vercammen, James A, 1995. "Credit Bureau Policy and Sustainable Reputation Effects in Credit Markets," Economica, London School of Economics and Political Science, vol. 62(248), pages 461-78, November. [Downloadable!] (restricted)
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  10. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
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  14. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank. [Downloadable!]
  16. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-51, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fehr, Ernst & Singer, Tania, 2005. "The Neuroconomics of Mind Reading and Empathy," CEPR Discussion Papers 5128, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Ernst Fehr & Urs Fischbacher & University of Zurich, 2005. "Neuroeconomic Foundations of Trust and Social Preferences," IZA Discussion Papers 1641, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers 5115, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Reiss, J. Philipp & Wolff, Irenaeus, 2007. "Non-monotonic Repayment Contracts are Superior: An Experimental Approach," Research Memoranda 053, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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