NBER Publications by Rajkamal Iyer

The current banking crisis highlights the challenges faced in the traditional lending model, particularly in terms of screening smaller borrowers. The recent growth in online peer-to-peer lending marketplaces offers opportunities to examine different lending models that rely on screening by multiple peers. While these market-based, non-hierarchical structures potentially offer screening advantages, especially in utilizing soft information, individual lenders likely lack financial expertise and lending experience. This paper evaluates whether lenders in such peer-to-peer markets are able to use borrower information to infer creditworthiness. We examine this ability in one such online market using a methodology that takes advantage of lenders not observing a borrower’s true credit score but ...

We use a unique, new, database to examine micro depositor level data for a bank that faced a run. We use minute-by-minute depositor withdrawal data to understand the effectiveness of deposit insurance, the role of social networks, and the importance of bank-depositor relationships in influencing depositor propensity to run. We employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running, and the significant underlying factors. We find that deposit insurance is only partially effective in preventing bank runs. Further, our results suggest that social network effects are important but are mitigated by other factors, in particular the length and depth of the bank-depositor relationship. Depositors with longer r...