The Effects of Competition in Consumer Credit Markets

Stefan Gissler, Rodney Ramcharan, Edison Yu and Philip Strahan

The Review of Financial Studies, 2020, vol. 33, issue 11, 5378-5415

Abstract: This paper finds that banks and nonbanks respond differently to increased competition in consumer credit markets. Increased competition and a greater threat of failure induces banks to specialize in relationship business lending, and surviving banks are more profitable. However, nonbanks change their credit policy when faced with more competition and expand credit to riskier borrowers at the extensive margin, resulting in higher default rates. These results show how the effects of competition depend on the form of intermediation. They also suggest that increased competition can cause credit risk to migrate outside the traditional supervisory umbrella.

JEL-codes: D4 G21 G23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: The Effects of Competition in Consumer Credit Market (2019)
Working Paper: The Effects of Competition in Consumer Credit Markets (2018)
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