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Determinants of Borrowing Limits on Credit Cards

Shubhasis Dey () and Gene Mumy

Staff Working Papers from Bank of Canada

Abstract: The difference between actual borrowings and borrowing limits alone generates information asymmetry in the credit card market. This information asymmetry can make the market incomplete and create ex post misallocations. Households that are denied credit could well turn out to be ex post less risky than some credit card holders who borrow large portions of their borrowing limits. Using data from the U.S. Survey of Consumer Finances , the authors find a positive relationship between borrower quality and borrowing limits, controlling for banks' selection of credit card holders and the endogeneity of interest rates. Their estimation reveals how interest rates have a negative influence on the optimal borrowing limits offered by banks.

Keywords: Market structure and pricing; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: C3 D4 D82 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005
New Economics Papers: this item is included in nep-fmk and nep-mic
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Citations: View citations in EconPapers (5) Track citations by RSS feed

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