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Personal Bankruptcy and Credit Market Competition
Author(s) -
DICK ASTRID A.,
LEHNERT ANDREAS
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01547.x
Subject(s) - bankruptcy , deregulation , competition (biology) , exploit , business , monetary economics , financial system , barriers to entry , bond market , productivity , economics , market economy , finance , industrial organization , market structure , macroeconomics , ecology , computer security , computer science , biology
We document a link between U.S. credit supply and rising personal bankruptcy rates. We exploit the exogenous variation in market contestability brought on by banking deregulation—the relaxation of entry restrictions in the 1980s and 1990s—at the state level. We find deregulation explains at least 10% of the rise in bankruptcy rates. We also find that deregulation leads to increased lending, lower loss rates on loans, and higher lending productivity. Our findings indicate that increased competition prompted banks to adopt sophisticated credit rating technology, allowing for new credit extension to existing and previously excluded households.