“Bank Misconduct and Online Lending” with Isaiah Hull (Sveriges Riksbank), Yingjie Qi (Stockholm School of Economics) and Xin Zhang (Sveriges Riksbank)
We introduce a high quality proxy for bank misconduct that is constructed from
Consumer Financial Protection (CFPB) complaint data. We employ this proxy to
measure the impact of bank misconduct on the expansion of online lending in the
United States. Using nearly complete loan and application data from the online lending
market, we demonstrate that bank misconduct is associated with a statistically and
economically signicant increase in online lending demand at the state and county
levels. This result is robust to the inclusion of bank credit supply shocks and holds for
both broader and more narrowly-dened bank misconduct measures. Furthermore, we
show that this eect is strongest for lower rated borrowers and weakest in states with
high levels of generalized trust.
- Keywords: financial development, consumer loans, bank misconduct, FinTech.