Staff Working Paper No. 1,067
By Paolo Siciliani and Peter Eccles
We analyse how the design of credit registers can influence competition in lending markets. We focus on a particular design choice, namely whether or not credit registers should record previous loan applications that did not result to a subsequent loan origination. This design choice can have subtle effects to the extent that the fact that a prospective borrower has previously applied with other lenders for the same loan can be informative. This is particularly likely to be the case if the failed or withdrawn application was with an innovative lender that is better at screening prospective borrowers thanks to the use of Big Data-driven methodologies (eg ML and AI) alongside the traditional credit scoring approach. On the one hand, we find that when credit registers record previous loan requests rates advertised to borrowers are lower than when credit registers do not record loan requests. On the other hand, the incentives to invest in advanced screening technologies are weakened as a result.
Information disclosure and information acquisition in credit markets
