Code for: The Extension of Credit with Non-Exclusive Contracts and Sequential Banking Externalities
Principal Investigator(s): View help for Principal Investigator(s) Giacomo De Giorgi, GSEM-University of Geneva; Andres Drenik, University of Texas-Austin; Enrique Seira, ITAM
Version: View help for Version V1
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Project Citation:
De Giorgi, Giacomo , Drenik, Andres, and Seira, Enrique. Code for: The Extension of Credit with Non-Exclusive Contracts and Sequential Banking Externalities. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-01-26. https://doi.org/10.3886/E152242V1
Project Description
Summary:
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Non-exclusive sequential borrowing can increase default and impose externalities on prior lenders. We document that sequential banking is pervasive and its effects substantial. Using credit card applications from a large bank and data on the applicants' entire loan portfolios, we find that an additional credit line causes a 5.9 percentage point decline in default for high credit-score borrowers on previously existing loans. However, for low-score borrowers, it causes a 19 percentage point increase. The former use the new credit to smooth payments on preexisting loans, while the latter increase their total debt. These results have implications for "no-universal-default'' regulation and financial inclusion.
Scope of Project
Subject Terms:
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Credit cards;
Sequential banking;
Credit Externalities;
Moral hazard;
Default risk;
Financial inclusion
JEL Classification:
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D14 Household Saving; Personal Finance
E51 Money Supply; Credit; Money Multipliers
G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
D14 Household Saving; Personal Finance
E51 Money Supply; Credit; Money Multipliers
G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
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