Piercing Through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses During Normal Times and the COVID-19 Crisis

Allen N. Berger, Christa H. S. Bouwman, Lars Norden, Raluca Roman (), Gregory Udell () and Teng Wang

No 21-19, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We investigate bank relationships in a rarely considered context – consumer and small business credit cards. Using over one million accounts, we find during normal times, consumer relationship customers enjoy relatively favorable credit terms, consistent with the bright side of relationships, while the dark side dominates for small businesses. During the COVID-19 crisis, both groups benefit, reflecting intertemporal smoothing, with more benefits flowing to safer relationship customers. Conventional banking relationships benefit consumers more than credit card relationships, with mixed findings for small businesses. Important identification issues are addressed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act consumer-delinquency reporting impediments reduce the informational value of consumer credit scores, penalizing safer borrowers.

Keywords: Credit cards; household finances; consumers; small businesses; relationship lending; banks (search for similar items in EconPapers)
JEL-codes: D12 G01 G20 G28 (search for similar items in EconPapers)
Pages: 77
Date: 2021-05-27
New Economics Papers: this item is included in nep-ban and nep-pay
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Citations: View citations in EconPapers (5)

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Journal Article: Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis (2024)
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DOI: 10.21799/frbp.wp.2021.19

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