Sequential Banking: Direct and Externality Effects on Delinquency
The ability to borrow sequentially from multiple lenders might generate sizable externalities in delinquencies. We provide evidence on the existence and "large" size of such effects. We first document that loan approval causes a persistent difference in the number of loans between initially approved and non-approved. We then show that while loan approval leads to no default for high credit score applicants, it causes a large 7pp increase in default on previously existing loans for lower score applicants. That is, a 1,000 MXN (60 USD) extra loan is associated with an increase in the probability of default of 1.5pp for the lower credit score group. This produces average losses close to 18% of total debt, an important externality on previous lenders. This shows that the financial inclusion of clients with lower credit scores is hard due to higher default, and that sequential banking may lead to high default equilibria.
|Date of creation:||Sep 2017|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:12280. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.