The Effects of Competition in Consumer Credit Markets

Stefan Gissler, Rodney Ramcharan and Edison Yu
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Stefan Gissler: https://www.federalreserve.gov/econres/stefan-gissler.htm

No 18-24, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Using changes in financial regulation that create exogenous entry in some consumer credit markets, we find that increased competition induces banks to become more specialized and efficient, while deposit rates increase and borrowing costs for riskier collateral decline. However, shadow banks change their credit policy when faced with more competition and aggressively expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the form of intermediation can shape economic fluctuations. They also suggest that increased competition can lead to large changes in credit policy at institutions outside the traditional supervisory umbrella, possibly creating a less stable financial system.

Keywords: credit policies; consumer credit (search for similar items in EconPapers)
Pages: 63 pages
Date: 2018-10-23
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Related works:
Journal Article: The Effects of Competition in Consumer Credit Markets (2020)
Working Paper: The Effects of Competition in Consumer Credit Market (2019)
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DOI: 10.21799/frbp.wp.2018.24

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