Discussion paper

DP12280 Sequential Banking: Direct and Externality Effects on Delinquency

The ability to borrow sequentially from multiple lenders is a standard feature of credit markets that may lead to high default and inefficiency, yet little is known about its prevalence in practice and the magnitude of risks it induces. We show that sequential banking is pervasive, that it causes a 92% increase in default on sequentially prior cards and 48% for non-card loans, resulting in average losses of 18% of total debt, an important externality on previous lenders. The effect of more credit on default is only present for borrowers at the “bancarization” margin, not for ex-ante low risk applicants.


De Giorgi, G, A Drenik and E Seira Bejarano (2017), ‘DP12280 Sequential Banking: Direct and Externality Effects on Delinquency‘, CEPR Discussion Paper No. 12280. CEPR Press, Paris & London. https://cepr.org/publications/dp12280