In the shadow of big tech lending

We investigate the impact of Big Tech lending on non-bank traditional lenders, which have a more overlapping clientele with Big Tech lenders than traditional banks. Our empirical methodology exploits geographical differences in Big Tech penetration ratios and adopts the instrumental variable (IV) approach using the FinTech payment adoption ratio and the distance to the Big Tech's headquarter. We find that the competition from Big Tech worsens the performance of branches facing stronger Big Tech competition by reducing the number of borrowers and the amount of loans. Moreover, branches in cities highly penetrated by Big Tech lending tighten the lending standard by reducing loan-to-value (LTV) ratios, measured as the approved loan amount per unit collateral value, while keeping the average collateral requirement unchanged. Our findings are consistent with the cream-skimming hypothesis that Big Techs possess better screening technology and reduce the quality of borrowers applying for traditional loans. Our results document novel changes in and responses of the non-bank traditional lending business in the Big Tech era.     

Discrimination in hire‐purchase lending by retailers of consumer durables in apartheid South Africa

A double‐hurdle partial observability model of hire‐purchase lending is specified and estimated to test for racial discrimination by retailers of consumer durables during apartheid. ‘Discrimination’ is defined as supplying no loans or less desirable loans to certain borrowers, who do not differ from more successful borrowers with respect to creditworthiness but who do differ with respect to race. There is strong evidence of discrimination. In particular, black households are 13 percentage points more likely to desire a hire‐purchase loan but not to have one supplied to them than are other households equivalent in all ways except race. Although the statistical test cannot determine whether race affected lending because lenders were bigoted or because race is correlated with unobserved characteristics correlated in turn with creditworthiness, increased access to formal loans for all South Africans could be promoted by relaxing the Usury Act and by removing from loan applications information that could reveal an applicant's race.     

Why are mortgage rates so uniform?

Conclusion Any reasonable model of mortgage lending concludes that interest rates depend on loan and borrower characteristics. In this paper, the rate is a function of the loan-to-value ratio, the parameters of the densities of future price of housing and income, deposit rate, and cost of foreclosure. Nevertheless, in practice, each lender charges only one rate to all borrowers. This is first explained by the difficulty of estimation of the parameters of the density functions. Since lenders cannot categorize their borrowers, they treat them uniformly and set minimum standards to minimize the risk of default by each borrower. Mortgage insurance, moreover, enables lenders to lend risklessly outside of the range in which they can operate risklessly on their own. Second, mortgage rate uniformity is explained by the lenders' risk aversion. Third, when borrowers are separated into discrete categories, uniform rates can result from perfect categorization of borrowers with respect to the future value of the relevant random variables. It is more likely, however, that lenders cannot categorize borrowers perfectly and that interest rates vary substantially among categories. As rates jump from one category to the next and borrowers are reluctant to gain small increases in loan size at significantly higher rates, lenders respond by offering only the basic category of loans.     

Commercial Lenders' Use of Accounting Information in Interaction with Source Credibility*

Abstract. The credibility of individual commercial borrowers, which lenders refer to as “character,” affects lenders' use of accounting information. This effect of source credibility is subtle compared to the effect of external audits on the use of financial statements in other contexts. It is hypothesized that accounting facts must be positive (supporting loan approval) for character facts to influence lenders' judgments and loan decisions. Character facts will not affect judgments or loan decisions significantly when accounting facts are negative (supporting loan denial). This accounting/character interaction is predicted to become stronger as lenders gain experience and develop criteria for evaluating character. In an experiment, lenders read a loan application that contained facts concerning accounting, character, and other information; the accounting and character facts were manipulated to be either positive or negative, resulting in four versions of the application. The lenders recommended approval or denial of the loan and estimated the likelihood that the loan would be fully repaid (a risk estimate). Interactive effects of accounting and character facts on lenders' loan decisions and risk estimates were found, but the accounting/character interactions generally did not vary with experience level. One notable difference was that experienced lenders never approved loans when accounting facts were negative, but inexperienced lenders sometimes did.     

Debt and development: The role of foreign capital in economic growth

Capital flows, whether between individuals or nations, are dominated by a two- fold paradox. Borrowers are initially primarily interested in obtaining sufficient funds for their needs, but once they have obtained a loan, their indebtedness becomes their principal concern. While a loan is being negotiated the lenders usually have the upper hand, but once it is made, they become dependent on the borrowers for repayment with interest. Their power to withhold future loans becomes their only real measure of control. Borrowing and lending has costs and benefits, and these balance out only in exceptional cases for both the borrowing and lending countries and the principal social groups within them. The debate about the impact of international capital flows accordingly has a long history. This paper begins with a historical perspective, and then reviews the principal characteristics of capital flows to developing countries since the 1950s. A discussion of the impact of capital flows on development, with a particular emphasis on trends in developing country indebtedness, follows. A brief examination of borrowing and debt management issues for borrowers, lenders and the international community concludes the paper.     

Lending Through the Cycle: The Federal Housing Administration’s Evolving Risk in the Primary Market

Utilizing a sample of loan originations, the distribution of the market served by the Federal Housing Administration (FHA) and conventional lenders is modeled through this current cycle. Results indicate that FHA market shares in the early years of the observation period (2003 through 2006) are concentrated in zip codes with higher economic risk characteristics and obtained by high risk borrowers. FHA is forced to accept lower quality loans as competition from more nimble private lenders with lower access hurdles and more rapid processing expanded into markets traditionally served by FHA. Unexpectedly, the analysis also reveals that the distribution of FHA loans fails to exhibit a targeted racial bias toward neighborhoods with African American Concentration.     

Bank Monitoring and Financial Reporting Quality: The Case of Accounts Receivable–Based Loans*

Using novel receivable-based loan data, we study the effect of aging-report loan covenants on borrowers' accounts receivable reporting quality. Our purpose is to highlight a channel that lenders use to obtain private information and to understand whether lenders' information acquisition affects the financial reporting quality of borrowers. Compared to receivable-based borrowers without aging-report requirements (control firms), borrowers with such requirements (test firms) increase their receivable reporting quality significantly after loan initiations. The shift in reporting quality is more pronounced when borrowers have weak bargaining power. Our results lend support to the argument that lender information access affects borrowers' reporting quality.     

Commercialization and mission drift: Evidence from a large Chinese microfinance institution

Front-line loan officers of microfinance institutions (MFIs) are important in acquiring information on potential borrowers and selecting them in accordance with the MFI's mission. We use a unique data set on loan officers and their loan portfolios from China's largest NGO microfinance institution to test whether officers' personal characteristics affect the size and quality of their loans. We study a period in which the institution shifted from reliance on government donations and subsidies to commercial sources of funding. Imposing more commercial incentives on loan officers could affect how they balance potentially competing objectives to serve the poor and pursue profitability. We find that loan officers who were formerly farmers or worked in local government were better able to maintain lending to poorer borrowers, without incurring substantially lower repayment rates on their loans. In short, it appears that the career backgrounds of loan officers did play a role in preventing mission drift.     

Debt dilution in 1920s America: lighting the fuse of a mortgage crisis

The idea that real estate could have contributed to banking crises during the Great Depression has been downplayed due to the conservatism of mortgage contracts at the time. For instance, loan‐to‐value ratios often did not exceed 50 per cent. Using newly discovered archival documents and data from 1934, this article uncovers a darker side of 1920s US mortgage lending: the so‐called ‘second mortgage system’. As borrowers often could not make a 50 per cent down payment, a majority of them took second mortgages at usurious rates. As theory predicts, debt dilution, even in the presence of seniority rules, can be highly detrimental to both junior and senior lenders. The probability of default on first mortgages was likely to increase, and commercial banks were more likely to foreclose. Through foreclosure they would still be able to retrieve 50 per cent of the property value, but often after a protracted foreclosure process. This would have put further strain on banks during liquidity crises. This article is thus a timely reminder that second mortgages, or ‘piggyback loans’ as they are called today, can be hazardous to lenders and borrowers alike. It provides further empirical evidence that debt dilution can be detrimental to credit.     

Foreign bank lending and information asymmetries in China: Empirical evidence from the syndicated loan market

This paper considers whether information asymmetries affect the willingness of foreign banks to participate in syndicated loans to corporate borrowers in China. We analyze how ownership concentration, which influences information asymmetries in the relationship between the borrower and the lender, exerts an impact on the participation of foreign banks in syndicated loans granted to Chinese borrowers in the period 2004–2009. We observe that greater ownership concentration of the borrowing firm does not positively influence participation of foreign banks in the loan syndicate. We conclude that information asymmetries are not exacerbated for foreign banks relative to local banks in China.     

Common Auditors and Private Bank Loans*

We show that when banks and borrowers share the same audit firm, borrowers receive lower interest rates, after controlling for potentially confounding director connectedness. The common auditor effect is observed only for opaque borrowers, and is greatest when the same audit engagement office audits the bank and borrower. A common auditor connection also matters more for longer‐tenured auditors, for geographically proximate borrowers, and when the syndicate involves fewer lenders. The effect does not hold for auditors recently sanctioned by the PCAOB. Finally, the interest rate discount is not the consequence of homophily or biased decision making, based on a comparison of postloan performance of firms with common auditor loans versus those with noncommon auditor loans.     

Broker Compensation Patterns and Trends: 2005–2009

Changes in the mortgage industry have been swiftly effected over the past few years. Many of the changes have come about as a response to the high level of observed delinquencies and defaults on residential mortgages as house prices plummeted, and others have evolved from continuing concerns about the treatment of borrowers during the mortgage origination process. The segmented mortgage industry of the early part of the decade, with loans being originated in the prime, subprime and government mortgage sectors, has been largely replaced with a bifurcated system. By year end 2010, the FHA/VA (government sector) combined with the conventional, conforming market share of originations was 90.8?%. In this paper, we examine some of the observed trends and changes in the types and levels of broker compensation that existed before the regulatory change that brought about the implementation of the Federal Reserve Board??s (FRB) new loan officer compensation rule. Among other questions, we examine the variance in broker compensation across geographies, across lenders, across borrower types, and across loan products. The intent of this ex post analysis is to provide an understanding of the potential impacts of the declining broker industry on both access to mortgage loans and on the pricing of mortgage originations.     

中小企业贷款利率偏高的理论解释与经验证据

现有贷款定价理论一般认为商业银行应该对中小企业贷款实行高定价以实现当期收益最大化,却对中小企业后续业务价值缺乏考虑。本文认为后续业务价值可以用期权收益表示,进而利用期权定价方法构建了同时考虑当期收益和期权收益的贷款定价模型,并以广东省某股份制商业银行2011年中小企业贷款数据为基础进行了实证应用与比较。分析结果表明,当前市场条件下商业银行没有综合考虑中小企业贷款后期权风险与价值的合理匹配,商业银行对中小企业短期贷款利率水平偏高,而长期贷款又过度集中于传统行业并有定价偏低迹象。总体而言,商业银行高估了中小企业短期贷款风险制定了较高贷款利率,这可能超过了中小企业融资负担承受能力,并进一步阻碍中小企业发展壮大与商业银行后续业务拓展。     

新制度经济学视域下国家助学贷款制度优化体系构建

国家助学贷款制度是国家主要为解决高等学校中经济确实困难的来自农村的全日制本科生、专科生和研究生,由银行开办并由国家财政贴息的一系列助学贷款制度安排的集合。文章从新制度经济学的角度分析国家助学贷款制度的内涵,探讨国家助学贷款制度设计的缺失,指出从四方协调、制度创新和法律法规三方面建立健全国家助学贷款制度优化体系。     

RATIONING, SPILLOVER, AND INTERLINKING IN CREDIT MARKETS: THE CASE OF RURAL PUNJAB

A parallel market structure may exhibit extensive rationingin the regulated segment, and hence spillover of unsatisfieddemand into the unregulated segment of the market. In the lattersegment, the borrower can choose to bundle loan contracts withoutput marketing through the lender. Using data on Punjabi cultivators,econometric estimation of such a structure yields three principalfindings: (i) most borrowers and non-borrowers were rationedin the regulated market; (ii) demand for credit was fairly inelasticwith respect to the interest rate; (iii) a contractual provisiontying credit to output marketing made informal lenders willingto advance much bigger loans. One pana and a quarter is the lawful rate of interest per monthon one hundred panas, five panas for purposes of trade, tenpanas for those going through forests, twenty panas for thosegoing by sea. For one charging or making another charge a ratebeyond that, the punishment shall be the lowest fine for violence,for witnesses, each one of them, half the fine. If, however,the King is unable to ensure protection, the Qudge) should takeinto consideration the usual practice among creditors and debtors.The Kautiliya Arthasastra (a fourth century BC work on kingshipand statecraft).     

中小企业贷款利率偏高的理论解释与经验证据

现有贷款定价理论一般认为商业银行应该对中小企业贷款实行高定价以实现当期收益最大化,却对中小企业后续业务价值缺乏考虑。本文认为后续业务价值可以用期权收益表示,进而利用期权定价方法构建了同时考虑当期收益和期权收益的贷款定价模型,并以广东省某股份制商业银行2011年中小企业贷款数据为基础进行了实证应用与比较。分析结果表明,当前市场条件下商业银行没有综合考虑中小企业贷款后期权风险与价值的合理匹配,商业银行对中小企业短期贷款利率水平偏高,而长期贷款又过度集中于传统行业并有定价偏低迹象。总体而言,商业银行高估了中小企业短期贷款风险制定了较高贷款利率,这可能超过了中小企业融资负担承受能力,并进一步阻碍中小企业发展壮大与商业银行后续业务拓展。     

Bank-moneylender linkage as an alternative to bank competition in rural credit markets

This paper proposes a new method in which banks and moneylenderscan link in rural credit markets. Banks and moneylenders, twoof the major lenders in rural credit markets, differ in theirinformation on borrowers and costs of funds. Due to informationconstraints, banks must deny further loans to borrowers whocannot repay a certain amount. In the linkage, these borrowersobtain loans from moneylenders, repay the banks, and have continuingaccess. We then evaluate conditions under which the linkagewould be preferred to bank competition and find that the linkagedominates for a wide range of parameters. In light of recentproposals to liberalize Indian banking, the analysis providesa cautionary note to the limits of introducing banking competitionin rural credit markets and provides an alternative.     

Financial Statement Quality and Debt Contracting: Evidence from a Survey of Commercial Lenders

We survey commercial bank lenders to better understand how they evaluate and react to variation in financial statement quality and how they view recent changes in accounting standards. A unique aspect of this study is that our respondents focus on medium‐size loans to private companies. In fact, more than 90 percent of the survey respondents primarily make credit decisions on loans between $250 thousand and $50 million. This is in contrast to prior archival research, which focuses primarily on very large loans to public firms or very small loans to private firms. We find that lenders in our sample distinguish among financial statements in terms of quality, including conservatism, primarily on the basis of accrual patterns and restatements. While this general result holds throughout our sample, financial statement quality is substantially more important for lenders making larger loans (over $10 million) as compared to very small loans (under $1 million). In addition, bank lenders are much more likely to respond to low‐quality reporting with collateral and guarantee requirements than with an increase in the interest rate charged. This finding is consistent for lenders making both larger and smaller loans. Finally, despite concerns in the academic literature, bank lenders in our sample actually hold a neutral‐to‐positive view of recent changes in accounting standards. In addition, most do not support current efforts to exempt private companies from some accounting standards.     

信息不对称、抵押物与商业银行消费贷款经营行为——基于商业银行微观业务数据的经验分析

本文基于国内某银行消费贷款业务数据,实证研究了信息不对称条件下抵押物对商业银行消费贷款经营行为的影响。结果表明：（1）抵押物能够显著影响商业银行消费贷款配给行为,提供抵押物的借款人获得的借款额度明显较高,且抵押物配给效果受信息不对称程度影响明显;（2）抵押物与消费贷款违约风险呈现显著的负相关关系,抵押物作用机制中的“客户选择”效应占主导地位;（3）抵押物决定与借款人事前风险评估无明显关联,但与借款人抵押物可获得性高度相关,表明银行业务经营中存在一定程度的抵押物依赖现象。     

Lending versus giving: The economics of foreign assistance

Historically, very little attention has been devoted to assessing the costs and benefits of concessional loans vs grants as the means of transferring resources to developing countries. Here it is argued that this omission is in part due to the lack of an acceptable analytic construct within which to measure the costs to donors and benefits to recipients of loans and grants. The paper proposes such a framework and explores some of the policy implications for development assistance policy, in particular the trade-off between the volume of assistance and the terms of that aid. The objective is to lay the groundwork for a more constructive dialogue between borrowers and lenders which, hopefully, could foster foreign assistance flows of greater value to developing countries.