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2020 Honors Thesis: Christina Ye


Christina Ye

Title of Thesis:

The Relationship Between Big4 Bank Lending Shares and Peer-to-Peer Loan Applications across Different Regions and the Changes in the Percentage of Low Credit Borrowers in the Context of Regulatory Changes


Kaiji Chen, Sheila T. Cavanagh (English), Victoria Powers (Mathematics)


The introduction of the Dodd-Frank Act in 2010 increased the regulatory burden and compliance costs of large banks and traditional credit borrowing became nearly impossible for individuals and small businesses to access. Thus, consumers started to switch to online lending platforms. During the same period, the total amount of credit applied by borrowers on Lending Club, a Peer-to-Peer FinTech (P2P) lender, increased from 51 million in 2009, to 6.6 billion in 2017. The regression result shows a statistically significant relationship between the increase in the total sum of loans applied for by borrowers on Lending Club and the decrease in Big4 shares. The significant increase in P2P loan applications also increased the default risk. This paper examines the default risk through analyzing the average FICO score and delinquency rate of credit borrowers in Lending Club. The credit score decreased from 694.4 in 2009 to 676.3 in 2014 and increased back to 689.8 in 2017. The delinquency increased from 13.4% in 2009 to 36.1% in 2016, and then decreased to 32.6% in 2017. These changes in credit scores and delinquency rates are explained by the regulatory changes. The initial introduction of the Dodd-Frank Act caused more low credit borrowers to switch to P2P lending and, when the Consumer Financial Protection Bureau (CFPB) started to microscope P2P lending in 2016, the number of low credit borrowers decreased. This shows that the CFPB is a suitable regulator for P2Pindustry.

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