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Peer-to-Peer Lending – A (Financial Stability) Risk Perspective

Author

Listed:
  • Benjamin Käfer

    () (University of Kassel)

Abstract

The aim of this paper is to discuss P2P lending, a subcategory of crowdfunding, from a (financial stability) risk perspective. The discussion focuses on a number of dimensions such as the role of soft information, herding, platform default risk, liquidity risk, and the institutionalization of P2P markets. Overall, we conclude that P2P lending is more risky than traditional banking. However, it is important to recognize that a constant conclusion would be misleading. P2P platforms have evolved and changed their appearance markedly over time, which implies that although our final conclusion of increased riskiness through P2P markets remains valid over time, it is based on different arguments at different points in time. In addition, we discuss that acting on P2P online platforms satisfies most possible definitions of shadow banking and shows significant similarities with many observed aspects of shadow banking. We thus infer that P2P lending can be considered part of the shadow banking sector.

Suggested Citation

  • Benjamin Käfer, 2016. "Peer-to-Peer Lending – A (Financial Stability) Risk Perspective," MAGKS Papers on Economics 201622, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201622
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2016/22-2016_kaefer.pdf
    File Function: First 201622
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    References listed on IDEAS

    as
    1. Belleflamme, Paul & Omrani, Nessrine & Peitz, Martin, 2015. "The economics of crowdfunding platforms," Information Economics and Policy, Elsevier, vol. 33(C), pages 11-28.
    2. Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153.
    3. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    4. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    5. Devin G. Pope & Justin R. Sydnor, 2011. "What’s in a Picture?: Evidence of Discrimination from Prosper.com," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 53-92.
    6. repec:eee:joinma:v:25:y:2011:i:1:p:27-36 is not listed on IDEAS
    7. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    8. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2014. "Some Simple Economics of Crowdfunding," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 63-97.
    9. repec:spr:fininn:v:1:y:2015:i:1:d:10.1186_s40854-015-0018-1 is not listed on IDEAS
    10. Seth Freedman & Ginger Zhe Jin, 2008. "Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from Prosper.com," Working Papers 08-43, NET Institute.
    11. Riza Emekter & Yanbin Tu & Benjamas Jirasakuldech & Min Lu, 2015. "Evaluating credit risk and loan performance in online Peer-to-Peer (P2P) lending," Applied Economics, Taylor & Francis Journals, vol. 47(1), pages 54-70, January.
    12. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    13. Jefferson Duarte & Stephan Siegel & Lance Young, 2012. "Trust and Credit: The Role of Appearance in Peer-to-peer Lending," Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2455-2484.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Peer-to-peer lending; crowdfunding; financial development; financial stability risk; shadow banking;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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