Banking Market Concentration and Consumer Credit Constraints: Evidence from the 1983 Survey of Consumer Finances

This paper uses data from the 1983 Survey of Consumer Finances to test the relationship between the banks’ market power and households’ self-reported levels of credit constraints. The 1983 Survey was the last to identify households’ geographic location, making it useful for this analysis. There is evidence that borrowers, and particularly young borrowers, were less credit-constrained in markets where banks enjoyed more market power. Interest rates on consumer borrowing decreased more sharply with age in competitive markets than in concentrated markets. These results are consistent with the Sharpe (1990) and Petersen-Rajan (1995) models of information acquisition in credit markets.