Who Needs Banks?

In the face of a continuing difficult credit environment, more borrowers are turning to peer-to-peer lending networks, which directly connect lenders and borrowers. These networks have recently financed nearly half a billion dollars in lending. Ray Fisman examines these networks and discusses the conflicting economic research on them. While economists have found some evidence of “human frailty and bias” in lending decisions, one recent study of a specific network concluded that the “credit market operates quite efficiently and without a bank pocketing a slice of the proceeds.” (Earlier: a word on Prosper.) [%comments]