Is FinTech a Threat to Financial Stability? Evidence from Peer-to-Peer Lending in China

Research Interest
We study the impact of P2P lending on household leverage. We rely on a novel, hand-collected database, including detailed information on all lending transactions at Renrendai, a leading Chinese peer-to-peer (P2P) lending company. We exploit two policy interventions in the market for real estate mortgages in a number of major Chinese cities, which first increase (in 2013) and later reduce (in 2015) the demand for P2P lending, while leaving overall credit demand unchanged. We analyze P2P loan applications and credit outcomes around the two policy interventions, comparing affected and un-affected cities in a difference-in-differences setting. Our test can provide comparatively clean empirical evidence on the capacity of P2P lending to lead to excessive levels of household debt and undermine policy interventions in the credit market. More broadly, it can inform the ongoing debate on FinTech and the regulatory challenges posed by the disintermediation of financial services.