Informational Barriers and Credit Rationing in the Market for Credit Cards

Abstract

In this paper we employ a unique dataset containing detailed information on credit card applications and decisions from one of the leading banks in China. We study the effects of informational barriers on consumer finance rationing. In particular, we investigate the impact of banks’ internally produced information through relationship lending and publicly available credit registry information on these barriers. We find that informational barriers have both a statistically and economically significant impact on credit rationing. Internally produced information per se does not alleviate such barriers. Publicly available credit registry information reduces information asymmetries and promotes lending to informationally opaque borrowers.