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Sequential Banking: Direct and Externality Effects on Delinquency

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  • De Giorgi, Giacomo
  • Drenik, Andres
  • Seira Bejarano, Enrique

Abstract

The ability to borrow sequentially from multiple lenders is a standard feature of credit markets that may lead to high default and inefficiency, yet little is known about its prevalence in practice and the magnitude of risks it induces. We show that sequential banking is pervasive, that it causes a 92% increase in default on sequentially prior cards and 48% for non-card loans, resulting in average losses of 18% of total debt, an important externality on previous lenders. The effect of more credit on default is only present for borrowers at the “bancarization†margin, not for ex-ante low risk applicants.

Suggested Citation

  • De Giorgi, Giacomo & Drenik, Andres & Seira Bejarano, Enrique, 2017. "Sequential Banking: Direct and Externality Effects on Delinquency," CEPR Discussion Papers 12280, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12280
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    Cited by:

    1. Andrea Attar & Catherine Casamatta & Arnold Chassagnon & Jean Paul Décamps, 2019. "Contracting Sequentially with Multiple Lenders: The Role of Menus," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(4), pages 977-990, June.
    2. Bertanha, Marinho, 2020. "Regression discontinuity design with many thresholds," Journal of Econometrics, Elsevier, vol. 218(1), pages 216-241.

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