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Credit Registries, Relationship Banking and Loan Repayment


Brown, Martin; Zehnder, Christian (2005). Credit Registries, Relationship Banking and Loan Repayment. Working paper series / Institute for Empirical Research in Economics No. 240, 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 loannrepayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted forntwo market environments: first a market in which interactions between borrowers and lenders are one-off and, second, a market in which borrowers and lenders cannchoose 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 significantlynraises repayment rates and the credit volume extended 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 valuenadded of a public credit registry."

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 loannrepayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted forntwo market environments: first a market in which interactions between borrowers and lenders are one-off and, second, a market in which borrowers and lenders cannchoose 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 significantlynraises repayment rates and the credit volume extended 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 valuenadded of a public credit registry."

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:May 2005
Deposited On:29 Nov 2011 22:32
Last Modified:12 Aug 2017 12:57
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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