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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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Cited by:
  1. Bartling, Björn & Fehr, Ernst & Schmidt, Klaus M., 2009. "Screening, Competition, and Job Design Economic Origins of Good Jobs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 297, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Tania Singer & Ernst Fehr, 2005. "The Neuroeconomics of Mind Reading and Empathy," American Economic Review, American Economic Association, vol. 95(2), pages 340-345, May.
  3. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundation of Trust and Social Preferences," CEPR Discussion Papers 5127, C.E.P.R. Discussion Papers.
  4. Irenaeus Wolff & J. Philipp Reiss, 2012. "Incentive Effects of Funding Contracts: An Experiment," TWI Research Paper Series 78, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
  5. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers 5115, C.E.P.R. Discussion Papers.
  6. Schram, Arthur & Brandts, Jordi & Gërxhani, Klarita, 2010. "Information, bilateral negotiations, and worker recruitment," European Economic Review, Elsevier, vol. 54(8), pages 1035-1058, November.

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