Dear Faculty and Fellow PhD Students,

I cordially invite you to attend my dissertation defense scheduled for Friday, June 19, 10:30am-12:00pm EST. To attend, please use the following Bluejeans link:

https://bluejeans.com/296468695

Nikhil Paradkar

Area: Finance

Committee Members: Dr. Sudheer Chava (Chair), Dr. Manpreet Singh, Dr. Alexander Oettl, Dr. Rohan Ganduri (Emory University)

Title: Essays on Financial Intermediation and Household Finance

Dissertation Overview:

Essay 1: Reducing Risk or Reaching for Yield? Impact of Stress Tests on Credit Card Lending

Using proprietary account-level data from a major credit bureau, I examine the impact of stress tests on bank risk-taking in the U.S. consumer credit card market. I decompose credit supply and demand effects by exploiting credit card--level data on limits and balances matched to both consumers and banks. For the same consumer, I examine the lending response of banks experiencing higher stress test--induced capital requirements (i.e., high-exposure banks) relative to less-exposed banks. I find that the earlier rounds of stress tests induced high-exposure banks to sharply reduce credit limits, especially for ex-ante risky borrowers. In contrast, in later rounds of stress tests, high-exposure banks increased limits for risky consumers. Consistent with higher bank risk-taking in later rounds, cards issued by highly exposed banks have a higher ex-post likelihood of default. Additionally, I document that more affected non-prime borrowers are more likely to default subsequently and that this effect is markedly pronounced for the low-income and less-educated consumer segments. My findings suggest that stress test--induced increases in capital requirements can encourage higher bank risk-taking, with distributional consequences for consumer creditworthiness.

Using comprehensive credit bureau data, we study how borrowing from marketplace lending (MPL) platforms impacts consumers' future borrowing capacities and defaults. We find that, compared to both observably similar bank borrowers and borrowers with unmet credit demand, MPL borrowers’ credit scores and credit limits improve temporarily after credit card debt consolidation. However, MPL borrowers experience higher defaults subsequently, especially compared to relationship bank borrowers. This gap increases after MPL platforms reduce applicant information provided to investors. Our results suggest that MPL screening is weaker relative to that of traditional banks.

Using approximately 500 million credit card--borrower--bank matched data, we analyze how a sharp unexpected decline in banks' short-term wholesale funding in 2008 affected their consumers. For the same consumer, card issuers with a 10% greater dependence on wholesale funding reduced credit limits by 3% more relative to other issuers. Consumers' aggregate card balances decreased by 0.32% for a 1% reduction in aggregate limits, with the effects more pronounced and longer-lasting for credit-constrained consumers. Our results suggest a persistent negative impact on the aggregate consumption of some consumers who could not hedge the shock to their banks' funding structure.