Can P2P Platforms Disempower Macroprudential Regulation in Europe?

This thesis examines P2P lending ́s ability to undermine Macroprudential regulation, in this case the LTV cap used to restrain household leverage and real estate prices. By utilizing an LTV cap tightening in Finland I was able to use a dataset from the online lending platform Bondora to run a difference-in-differences analysis to see how home-buyers are using the platform to circumvent the LTV cap relative to the control area in Estonia and Spain. The average amount of each loan on the Platform increases in the treated area, in line with the idea that borrowers are using the platform to circumvent the LTV cap tightening. I also find that there are fewer good rated (AA, A, B) on the platform in Finland after the LTV cap tightening, which is consistent with the idea that it will be lower rated borrowers turning to the platform for the required equity for a mortgage through the bank. Despite the decrease in the rating of borrowers, there is only a slight insignificant rise in default rate after the introduction of the LTV cap, suggesting that investors on the platform are able to censor out the riskiest borrowers. Bondora verifies the information provided by fewer borrowers in the treated area after the regulation change but makes up for it with shorter loan periods reducing the risk for their investors. The results of these tests present empirical evidence to the fact that P2P credit platforms have the ability to undermine LTV caps, which is something regulators have to take into consideration during policy decisions.