Peer-to-Peer Lenders Versus Banks: Substitutes or Complements?

Tang, Huan

doi:10.1093/rfs/hhy137

Cited by 477 publications

(237 citation statements)

References 26 publications

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“…These results also show that the traditional lending channel of monetary policy also holds for this specific platform, as a monetary policy expansion is significantly associated with an increase in loan supply. In addition, Table 12 indirectly demonstrates the interaction between banks and nonbanks, which is consistent with the findings in Tang (2019). Specifically, the results show that the condition in the housing and banking sector only significantly affects the demand side but not the supply side for the P2P.…”

Section: Impact Of Monetary Policy On Loan Demandsupporting

confidence: 83%

What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?

Huang

Wang

2019

SSRN Journal

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This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we are the first to provide quantitative evidence of the impact of monetary policy on the risk-taking of nonbank financial institution. We find that the search-for-yield is the main workhorse of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and a greater riskiness of credit allocation, but these changes do not necessarily relate to a larger loan amount on average.The risk-taking channel of monetary policy has attracted more attention since the global financial crisis. A low interest rate and lax monetary environment have been accused of giving rise to the higher risk preference of financial institutions, which was at the root of the financial tsunami (Adrian . This channel, if it holds true, implies that monetary policy goes far beyond the traditional impact on price stability and economic growth; it also has implications for systemic risk and financial stability (Borio and White 2004, Issing 2003, Smets et al. 2014, Stein 2012. Expansionary monetary policy can result in the increase of credit quantity (Gambacorta and Marques-Ibanez 2011, Kashyap and Stein 2000) as well as the decrease in credit quality Zhu 2012, Jiménez et al. 2014). Therefore, the relationship between monetary policy and macroprudential management becomes more convoluted and challenges the policymakers. The answers to the question of whether and how monetary policy affects risk-taking are pivotal to the policy discussion and of great academic interest.This paper studies the risk-taking channel of monetary policy based on the evidence from peer-to-peer (P2P, henceforth) lending. Specifically, we intend to answer the following three questions. First, whether the P2P platform's risk tolerance increases through higher probabilities and larger loan amounts to riskier borrowers when monetary policy eases. Second, what is the mechanism behind the risk-taking channel. In particular, this study investigates whether the search-for-yield and funding liquidity play a role in the risk-taking channel. Third, the tightening of regulation policy for the P2P industry in China provides a good experiment to study whether the financial regulation policies can curb the increased risk-taking during the expansionary monetary policy period.Using loan application-level data, we establish new evidence for the risk-taking channel of monetary policy. The main findings are threefold. To begin, a financial institution tends to take more risks when monetary policy eases by lending to riskier borrowers. Meanwhile, the impact of the increased funding liquidity in the liability side on risktaking is ambiguous. In addition, stricter regulation is effectiv...

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Section: Impact Of Monetary Policy On Loan Demandsupporting

confidence: 83%

What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?

Huang

Wang

2019

SSRN Journal

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“…At the end of 2017, there were more than 2414 online lending platforms in China, and the total trade amount reached up to RMB61,038.24 billion (WIND database). Because of it having some advantages summarized by Klafft (2009), disintermediation is happening in the credit market in which bank credit is dominant (Berger and Gleisner 2009;Bruett 2007;Tang 2019).…”

Section: Introductionmentioning

confidence: 99%

Voluntary disclosures and peer-to-peer lending decisions: Evidence from the repeated game

Gao³

2020

Front. Bus. Res. China

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This study investigates the effect of voluntary disclosures on lending decisions in the repeated game. Using a unique dataset from a peer-to-peer lending platform, "ppdai" (paipaidai), we document that voluntary disclosures in the repeated game play a stronger role in promoting funding success than those in the one-shot game. We argue that voluntary disclosures improve the bidding activity in the repeated game through which they increase funding success. In addition, the greater impact of voluntary disclosures on funding success in the repeated game only holds for loans without a personal guarantee attribution. Our extended results suggest that the subjective voluntary disclosures in the repeated game have greater information content only when borrowers have a successful borrowing experience. We also point out that voluntary disclosures in the repeated game are associated with a lower probability of default. Our results are robust to the Heckman two-step estimation that addresses the self-selection effect and a specification designed to rule out the alternative explanation from reputation in the repeated game. Our study provides new insights into the real effects of costless, voluntary and unverifiable disclosures on lending decisions.

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“…Although FinTech includes activities of the incumbent financial service providers, for example banks, it is mostly associated with the activities of start‐up companies, such as N‐bank and no‐bank competitors like Google Pay (Dapp, ; Puschmann, ). Therefore, numerous authors perceive FinTech as a challenge for established banks (Dapp, ; Brandl & Hornuf, ; Jagtiani & Lemieux, ; Philippon, ; Puschmann, ; Tang, ), which is not to deny that banks also cooperate with or invest in FinTech start‐ups (Brandl & Hornuf, ).…”

Section: Theoretical Background: Soft Information Regional Banks Anmentioning

confidence: 99%

“…The regional banks’ own digital distribution channels (all savings and cooperative banks offer competitive online banking services, apps, and so on developed and provided within their banking groups) and competition from other banks and FinTech companies comprise the digital competition. While digital competition tends to be particularly strong for private clients (Tang, ), peer‐to‐peer lenders also compete with banks for business clients.…”

Section: Business Lending By Banks and Peer‐to‐peer Lenders In Germanmentioning

confidence: 99%

Will FinTech make regional banks superfluous for small firm finance? Observations from soft information‐based lending in Germany

Flögel

Beckamp

2019

Economic Notes

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Regional banks have a competitive advantage in that short distances to clients enable the use of soft information for superior lending decisions. If the ambition of FinTech startups to create superior screening and monitoring technologies materialises, this advantage would be diminished and regional banks would become superfluous for small firm finance. To explore this claim, the paper in hand analyses qualitative empirical data about the lending processes and rating system use of regional German savings banks. In essence, the results from participant observation and interviews clarify the importance of "real" soft information for critical lending decisions. The context specificity and limited verifiability of "real" soft information hamper it from being hardened through the use of rating systems and other bank-ICT. Though FinTech's scoring technologies may overcome the first limitation, it appears likely that in the course of scoring development "real" soft information will be systematically crowded out due to the manipulation problem. The paper expects improved access to finance for SMEs if FinTech solutions overcome both limitations of "real" soft information use, or if peer-to-peer lending and regional banks coexist. Deteriorated access to finance is expected if FinTech companies displace the relationship banking of regional banks due to enhanced competition, without preserving the advantages of "real" soft information with superior screening and monitoring technologies. The paper concludes with recommendations on how to prevent deteriorated access to finance for small firms by promoting fair competition and FinTech innovations. K E Y W O R D SFinTech, peer-to-peer lending, regional banks, relationship banking, small firm finance, soft information

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Peer-to-Peer Lenders Versus Banks: Substitutes or Complements?

Cited by 477 publications

References 26 publications

What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?

What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?

Voluntary disclosures and peer-to-peer lending decisions: Evidence from the repeated game

Will FinTech make regional banks superfluous for small firm finance? Observations from soft information‐based lending in Germany

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