Banking and Credit Markets
Paper Session
Sunday, Jan. 8, 2023 1:00 PM - 3:00 PM (CST)
- Chair: Felix Rioja, Tulane University
Collective Action and the Access to Credit
Abstract
Collective action in the form of public demonstrations has the potential to bring change in areas as varied as voting behavior, environmental outcomes, and corporate actions. Prior literature has generally focused on the efficacy of collective action that is targeted at a specific issue or outcome. However, can collective action initiate change more broadly by increasing the salience of a social issue? We explore this question by studying private firms' responses to public demonstrations that highlight race-related issues. Specifically, we assess whether banks and other mortgage lenders provide greater access to home loans to minority communities following public demonstrations that call attention to racial inequities. We focus on home loans because of the significance of homeownership in explaining the wealth gap between whites and minorities, and because homeownership has been found to convey important social and economic benefits such as better educational outcomes and a reduced risk of incarceration. Our results indicate variation by lender type reflecting the varied incentives of lenders to respond to collective action by the community.Regulatory Disclosure and Access to Credit
Abstract
We study whether the disclosure of consumer complaints about their banks changes affected banks’ provision of consumer credit. Using a novel dataset containing consumer complaints from the Consumer Financial Protection Bureau (CFPB) and matching it with confidential data on mortgages, deposits, and market prices, we find that banks subject to prudential and CFPB oversight which receive consumer complaints experience a decline in their share prices and an increase in trading volumes. These banks also see a decrease in deposit and mortgage market shares, with more complaints resulting in higher deposit withdrawals. We find limited evidence that banks change deposit rates in response. Finally, we implement textual analysis to study the differential impact of consumer complaints. Overall, we provide new evidence on the role of information disclosure as a disciplinary mechanism in providing consumer credit.Bank Access Across America
Abstract
We use location data from millions of mobile devices to construct a granular measure of bank access throughout the United States. The measure originates from a spatial gravity model and is a function of a local area's distance from available bank branches and branch characteristics. To overcome methods that protect user privacy in the mobile device data, we estimate the access measure using the Method of Simulated Moments. The estimated gravity coefficient used in the access measure is -0.8, which implies that the number of residents visiting a bank branch drops by 80% for every doubling in the branch's distance away from home. We document substantial variation in bank access nationwide. Rural areas experience considerably weaker access than big cities. We use the access measure to evaluate a policy of postal banking. We estimate that the policy would improve bank access the most in low-income areas and areas with higher Black or Hispanic population shares.Funding Liquidity Creation by Banks
Abstract
Relying on theories in which bank loans create deposits—a process we call “funding liquidity creation”—we measure how much funding liquidity the U.S. banking system creates, i.e., what is the aggregate amount by which bank deposits exceed actual fiat money cash deposits at banks? This measures private money creation by banks that enables lending to not be constrained by the supply of cash deposits. During the 2001-2020 period, 92% of bank deposits were due to funding liquidity creation, and during 2011-2020 funding liquidity creation averaged $10.7 trillion per year or 57% of GDP. QE decreases funding liquidity creation. Larger and better-capitalized banks and those receiving greater supervisory attention create more funding liquidity. Using natural disasters data, we provide causal evidence that better-capitalized banks create more funding liquidity and lend more even during times when cash deposit balances are falling.JEL Classifications
- G2 - Financial Institutions and Services