Vilfredo Pareto Research Seminar
Leonardo Gambacorta

Data vs collateral

Leonardo Gambacorta, Head of the Innovation and the Digital Economy unit at the BIS
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Webinar streamed via Zoom

The Vilfredo Pareto Research Seminar is the Economics department's weekly seminar, featuring external speakers in all areas of economics.

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As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Leonardo Gambacorta, Head of the Innovation and the Digital Economy unit at the Bank for International Settlements (BIS).

The paper he will present, Data vs collateral, is coauthored with Yiping Huang, Zhenhua Li, Han Qiu and Shu Chen.

Abstract: The use of massive amounts of data by large technology firms (big techs) to assess firms' creditworthiness could reduce the need for collateral in solving asymmetric information problems in credit markets. Using a unique dataset of more than 2 million Chinese firms that received credit from both an important big tech firm (Ant Group) and traditional commercial banks, this paper investigates how different forms of credit correlate with local economic activity, house prices and firm characteristics. We find that big tech credit does not correlate with local business conditions and house prices when controlling for demand factors, but reacts strongly to changes in firm characteristics, such as transaction volumes and network scores used to calculate firm credit ratings. By contrast, both secured and unsecured bank credit react significantly to local house prices, which incorporate useful information on the environment in which clients operate and on their creditworthiness. This evidence implies that a greater use of big tech credit - granted on the basis of machine learning and big data - could reduce the importance of collateral in credit markets and potentially weaken the financial accelerator mechanism.


Before taking up his current position, Leonardo Gambacorta was Research Adviser (2014-18) and Head of Monetary Policy (2010-12) in the Monetary and Economic Department. Previously, he was Head of the Money and Credit Unit (2007-09) and Head of the Banking Sector Unit (2004-06) of the Research Department of the Bank of Italy. His main interests include monetary transmission mechanisms, the effectiveness of macroprudential policies in curbing systemic risk, and the effects of technological innovation on financial intermediation.