Sequential Banking: Direct and Externality Effects on Delinquency

Giacomo De Giorgi, Andres Drenik and Enrique Seira Bejarano

No 12280, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The ability to borrow sequentially from multiple lenders is a standard feature of credit markets that may lead to high default and inefficiency, yet little is known about its prevalence in practice and the magnitude of risks it induces. We show that sequential banking is pervasive, that it causes a 92% increase in default on sequentially prior cards and 48% for non-card loans, resulting in average losses of 18% of total debt, an important externality on previous lenders. The effect of more credit on default is only present for borrowers at the “bancarization†margin, not for ex-ante low risk applicants.

Date: 2017-09
New Economics Papers: this item is included in nep-ban and nep-fle
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