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Information Sharing and Lender Specialization in the US Commercial Lending Market

This discussion explores the dynamics of information sharing and lender specialization in the US commercial lending market, focusing on equipment finance. It examines the growth of equipment financing, the impact of joining a credit bureau, and the role of size and competition in the market. The findings provide insights into the potential expansion of lenders and the untapped financing sources for borrowers.

raymondmorgan
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Information Sharing and Lender Specialization in the US Commercial Lending Market

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  1. Discussion of Liberti-Sturgess-Sutherland: Information sharing and lender specialization: Evidence from the U.S. Commercial lending marketEdinburgh, May 2017Moqi Groen-Xu, LSE

  2. The setting: equipment finance • PayNet Credit Bureau: Credit bureau for equipment finance • $1.5 trillion total investment in equipment and software in the US, 2015 (IHS Markit) • $1.02 trillion (68%) was financed, 47% of which by banks • This compares to a $1.9 trillion commercial & industrial loans by commercial banks (Forbes) • 8 out of 10 (78%) of businesses use at least one form of financing when acquiring equipment • Strong competition, abundant liquidity • Much growth driven by information technology • Specialization and information matters: collaterals are very different from each other • Good setting to study competition dynamics and specialization • How does it compare to other lending markets?

  3. Poaching • Giannetti, Liberti, and Sturgess 2017: Banks manipulate credit ratings before joining a credit bureau to avoid poaching • This paper: “There is no indication that lenders systematically shift their portfolios in the periods before entry” • Why is the PayNet setting so different? • Different country • Specific industry • Voluntary adoption

  4. Selection into PayNet • Joining PayNet allows lenders to expand • This should be most lucrative for lenders trying to expand • That’s fine: interesting to see that they manage and how • Would be great to understand how these lenders compare to the rest of the population • Interpretation of the magnitudes

  5. The long-run • Digital technology has enabled information sharing and expansion into new markets • There are still barriers to entry: loan officers have a lot of inside information • How much does size matter? • Over time, how well do small lenders do in this highly concentrated market? • Interpretation of results suggest borrowers are able to untap new financing sources. Is that true? • What is the trajectory to the future? When will we reach saturation?

  6. Thank you for giving me this paper to discuss • Not my area: I learned a lot • Great setting, interesting question, tight research design • Research question is interesting not only in equipment financing, but lending in general, information sharing in general (patient information, education information...) – would be great to know how much we can generalize.

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