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Indebtedness and labor risk sorting across consumer lender types in Chile

Author

Listed:
  • Carlos Madeira

    (Bank for International Settlements and Central Bank of Chile)

Abstract

Chile’s consumer loan market has strong concerns about high indebtedness levels and credit constraints. Using survey data, I show that banks have the borrowers of highest income and education and the lowest unemployment rates, while households with no access to debt have the lowest income and education and the highest unemployment risk. I then simulate the effects of counterfactual policies, such as increased borrower repayment capacity tests and better financial literacy. Repayment capacity testing reduces the number of borrowers, aggregate debt amounts, and debt risk across all lender types. Financial literacy program has even stronger effects, reducing the number of borrowers, aggregate debt amounts, and delinquency risk by more than half across all lender types. The financial literacy program achieves its effect by increasing the number of households with “No wish for debt,” while the repayment capacity test has the downside of increasing the number of households with “No access to debt.”

Suggested Citation

  • Carlos Madeira, 2025. "Indebtedness and labor risk sorting across consumer lender types in Chile," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(2), pages 149-163, June.
    • Handle: RePEc:pal:jbkreg:v:26:y:2025:i:2:d:10.1057_s41261-024-00250-1
    DOI: 10.1057/s41261-024-00250-1
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    More about this item

    Keywords

    Consumer credit; Unemployment; Credit constraints; Labor income risk; Credit information laws; Financial literacy;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G50 - Financial Economics - - Household Finance - - - General
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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