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Piercing Through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses During Normal Times and the COVID-19 Crisis

Author

Listed:
  • Allen N. Berger
  • Christa H. S. Bouwman
  • Lars Norden
  • Raluca A. Roman
  • Gregory F. Udell
  • Teng Wang

Abstract

We investigate bank relationships in a rarely considered context – consumer and small business credit cards. Using over one million accounts, we find during normal times, consumer relationship customers enjoy relatively favorable credit terms, consistent with the bright side of relationships, while the dark side dominates for small businesses. During the COVID-19 crisis, both groups benefit, reflecting intertemporal smoothing, with more benefits flowing to safer relationship customers. Conventional banking relationships benefit consumers more than credit card relationships, with mixed findings for small businesses. Important identification issues are addressed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act consumer-delinquency reporting impediments reduce the informational value of consumer credit scores, penalizing safer borrowers.

Suggested Citation

  • Allen N. Berger & Christa H. S. Bouwman & Lars Norden & Raluca A. Roman & Gregory F. Udell & Teng Wang, 2021. "Piercing Through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses During Normal Times and the COVID-19 Crisis," Working Papers 21-19, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:92107
    DOI: 10.21799/frbp.wp.2021.19
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    5. Joseph P. Hughes & Julapa Jagtiani & Choon-Geol Moon, 2022. "Consumer lending efficiency: commercial banks versus a fintech lender," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-39, December.
    6. Allen N. Berger & Onesime Epouhe & Raluca Roman, 2021. "A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt," Working Papers 21-32, Federal Reserve Bank of Philadelphia.
    7. Li, Xiang, 2022. "The role of state-owned banks in crises: Evidence from German banks during COVID-19," IWH Discussion Papers 6/2022, Halle Institute for Economic Research (IWH), revised 2022.
    8. Temesvary, Judit & Wei, Andrew, 2024. "Domestic lending and the pandemic: How does banks’ exposure to COVID-19 abroad affect their lending in the United States?," Journal of International Money and Finance, Elsevier, vol. 143(C).
    9. Kung, Ming-Hsin & Chang, Chuang-Chang & Hsiao, Yu-Jen & Lo, Wen-Chi & Chang, Bi-Juan, 2024. "Banks can help? Evidence in the speed of lending for COVID-19 personal relief loans and financial inclusion," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
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    Keywords

    Credit cards; household finances; consumers; small businesses; relationship lending; banks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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