Show Me Yours and I’ll Show You Mine: Sharing Borrower Information in a Competitive Credit Market

J. Bos, Ralph De Haas and Matteo Millone

No 1508, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.

Keywords: Information sharing; credit market competition; hazard model (search for similar items in EconPapers)
JEL-codes: D04 D82 G21 G28 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2015
New Economics Papers: this item is included in nep-ban and nep-com
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Citations: View citations in EconPapers (9)

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Working Paper: Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market (2015)
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