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Credit Registries, Relationship Banking and Loan Repayment

Martin Brown () and Christian Zehnder ()

No 240, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: This paper examines the impact of a public credit registry on the repayment behavior of borrowers. We implement an experimental credit market in which loan repayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted for two market environments: first a market in which interactions between borrowers and lenders are one-off, and, second, a market in which borrowers and lenders can choose to trade repeatedly with each other. In the market with one-off interactions the credit market collapses without a credit registry as lenders rightly fear that borrowers will default. The introduction of a registry in this environment significantly raises repayment rates and the credit volume extende by lenders. In the market where repeat transactions are possible a credit registry is not necessary to sustain high market performance. In such an environment relationship banking enforces repayment even when lenders cannot share information, so that there is little value added of a public credit registry.

Keywords: Credit Market; Information Sharing; Relationship Banking (search for similar items in EconPapers)
JEL-codes: G21 G28 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa, nep-exp and nep-fin
Date: 2005-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

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