Show me Yours and I'll Show you Mine

Sharing Borrower Information in a Competitive Credit Market

R.T.A. de Haas, J. Bos, Matteo Millone

Research output: Working paperDiscussion paperOther research output

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Abstract

We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.
Original languageEnglish
Place of PublicationTilburg
PublisherEuropean Banking Center
Number of pages52
Volume2015-007
Publication statusPublished - 28 Apr 2015

Publication series

NameEuropean Banking Center
Volume2015-007

Fingerprint

Loans
Credit markets
Information sharing
Lending
Registry
Adverse selection
Intensive margin
Soft information
Small business loans
Bosnia and Herzegovina
Market competition
Margin
Extensive margin
Default rate
Credit

Keywords

  • information sharing
  • credit market competition
  • hazard models

Cite this

de Haas, R. T. A., Bos, J., & Millone, M. (2015). Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market. (European Banking Center; Vol. 2015-007). Tilburg: European Banking Center.
de Haas, R.T.A. ; Bos, J. ; Millone, Matteo. / Show me Yours and I'll Show you Mine : Sharing Borrower Information in a Competitive Credit Market. Tilburg : European Banking Center, 2015. (European Banking Center).
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de Haas, RTA, Bos, J & Millone, M 2015 'Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market' European Banking Center, vol. 2015-007, European Banking Center, Tilburg.

Show me Yours and I'll Show you Mine : Sharing Borrower Information in a Competitive Credit Market. / de Haas, R.T.A.; Bos, J.; Millone, Matteo.

Tilburg : European Banking Center, 2015. (European Banking Center; Vol. 2015-007).

Research output: Working paperDiscussion paperOther research output

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AU - Bos, J.

AU - Millone, Matteo

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N2 - We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.

AB - We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.

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ER -

de Haas RTA, Bos J, Millone M. Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market. Tilburg: European Banking Center. 2015 Apr 28. (European Banking Center).