Bank stability, credit information sharing and a shift toward households' lending: international evidence

Purpose - The study aims to investigate the relationship between a shift in lending activities toward households, credit information sharing and bank stability. Design/methodology/approach - A system generalized method of moments (GMMs) as proposed by Arellano and Bover (1995) is employed to examine the relationship using a sample of 80 countries from 2005 to 2014. Findings - The findings demonstrate that, in general, a shift in lending strategy toward the household sector may increase bank instability while credit information sharing has a positive impact on bank stability. When credit information sharing is promoted widely, this shift may become beneficial for the banking system. The results are robust when using different measures of credit information sharing, including the depth of index and the coverage of credit information sharing mechanisms. Practical implications - The results demonstrate that a shift in lending activities toward households should be considered a key variable in conducting macro-prudential policies. When a shift toward household credit relative to firm credit is evolved, the findings suggest that the authorities around the world should enact laws that magnify the scope and coverage of credit information shared and thus promoting the effectiveness of information sharing. Originality/value - The current study is the first attempt that examines the impacts of a shift in lending activities toward households and credit information sharing on bank stability.