Working Paper: CEPR ID: DP12668
Authors: Fabio Braggion; Alberto Manconi; Haikun Zhu
Abstract: We study whether and to what extent peer-to-peer (P2P) credit helps circumvent loan-to-value (LTV) caps, a key macroprudential tool to contain household leverage. We exploit the tightening of mortgage LTV caps in a number of cities in China in 2013 as our testing ground, in a difference-in-differences setting, and we base our tests on a novel, hand-collected database covering all lending transactions at RenrenDai, a leading Chinese P2P credit platform. P2P loans increase at the cities affected by the LTV cap tightening relative to the control cities, consistent with borrowers tapping P2P credit to circumvent the regulation. The granularity of our data allows us to separate credit demand from credit supply effects, with a fixed effects strategy. Our results also indicate that P2P lenders do not adjust their pricing and screening to the influx of new borrowers after 2013, despite the fact that their loans ex post have higher delinquency and default rates. Symmetric effects are associated with a loosening of mortgage LTV caps in 2015. Our test provides empirical evidence on the capacity of P2P credit to undermine LTV caps. More broadly, our analysis informs the debate on the challenges posed by the interaction between FinTech and credit regulation.
Keywords: peer-to-peer credit; household leverage; macroprudential regulation; loan-to-value caps
JEL Codes: G23; G01; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tightening of LTV caps in 2013 (G21) | Increase in P2P loans in treated cities (H81) |
| Increase in P2P loans in treated cities (H81) | Circumvention of downpayment requirements (G51) |
| Loosening of LTV caps in 2015 (G18) | Decrease in P2P lending demand (G21) |
| P2P lending (G51) | Higher delinquency and default rates post-2013 (G33) |
| P2P lending (G51) | Undermining of traditional LTV caps (G21) |