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Credit Growth and the Financial Crisis: A New Narrative

Stefania Albanesi (), Giacomo DeGiorgi and Jaromir Nosal
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Stefania Albanesi: University of Pittsburgh
Giacomo DeGiorgi: GSEM-University of Geneva

No 2017-066, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: A broadly accepted view contends that the 2007-09 financial crisis in the U.S. was caused by an expansion in the supply of credit to subprime borrowers during the 2001-2006 credit boom, leading to the spike in defaults and foreclosures that sparked the crisis. We use a large administrative panel of credit file data to examine the evolution of household debt and defaults between 1999 and 2013. Our findings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We show that credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high risk borrowers was virtually constant for all debt categories during this period. The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors. We argue that previous analyses confounded life cycle debt demand of borrowers who were young at the start of the boom with an expansion in credit supply over that period.

Keywords: subprime debt; housing boom; housing crisis (search for similar items in EconPapers)
JEL-codes: D14 E21 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-mac and nep-ure
Date: 2017-08
Note: M
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http://humcap.uchicago.edu/RePEc/hka/wpaper/Albane ... financial-crisis.pdf First version, August 23, 2017 (application/pdf)

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Working Paper: Credit Growth and the Financial Crisis: A New Narrative (2017) Downloads
Working Paper: Credit Growth and the Financial Crisis: A New Narrative (2017) Downloads
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