Consumer Bankruptcy and Soft Information

This paper analyzes the relationship between consumer bankruptcy patterns and banks' soft-information. Using a major Canadian bank merger as a source of exogenous variation in local banking conditions, we show that local markets affected by the merger exhibit a relative increase in consumer bankruptcy rates following the merger. We analyze different plausible mechanisms by which the merger might have led to higher bankruptcies and provide evidence consistent with the most plausible mechanism being the disruption of consumer-bank relationships. Markets affected by the merger show a decrease in the branch presence and market share of the merging institutions without overall changes in quantity of credit or loan rates.