Séminaires de recherche

Do Banks Pass Through Credit Expansions? The Targeting Problem of Bank-Mediated Stimulatory Policy

Finance

Intervenant : Johannes Stroebel
New York University

11 juin 2015


The effectiveness of bank-mediated stimulatory policy in raising household borrowing depends on the extent to which banks pass through credit expansions to households with a high marginal propensity to borrow (MPB). We use a panel dataset of 160 million credit card accounts and over 1,000 credit limit regression discontinuities to estimate MPB for households with different credit scores. We find substantial heterogeneity, with a $1 increase in credit limits raising total unsecured borrowing after 12 months by 54 cents for households with the lowest FICO scores (<660) versus 3 cents for households with the highest FICO scores (≥ 740). We use the same credit limit regression discontinuities to estimate banks’ marginal propensity to lend (MPL) out of a decrease in the cost of funds. For the lowest FICO score households, increased credit limits raise default rates and reduce marginal fee revenue, limiting pass-through. We estimate that a 1- percentage point reduction in the cost of funds increases credit limits by $249 for borrowers with the lowest FICO scores (< 660) versus $959 for households with the highest FICO scores (≥ 740). We conclude that banks have the least incentive to pass-through credit to households that want to borrow the most, diminishing the effectiveness of bank-mediated stimulatory policy.

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Contacts  

Département Finance 

Campus HEC Paris
1, rue de la Libération
78351 Jouy-en-Josas cedex
France

Faculté  

Stefano LOVO

Finance (GREGHEC)

Voir le CV

4th Annual HEC Paris Workshop Preliminary Program “Banking, Finance, Macroeconomics and the Real Economy”  


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