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  5. Access to Credit: Drivers and Effects
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Access to Credit: Drivers and Effects

Paper Session

Friday, Jan. 5, 2024 10:15 AM - 12:15 PM (CST)

Marriott Rivercenter, Conference Room 11
Hosted By: International Banking, Economics, and Finance Association
  • Chair: Ricardo Correa, Federal Reserve Board

Does Lending Discrimination Linger Geographically?

Alex Sclip
,
University of Verona
Horacio Sapriza
,
Federal Reserve Bank of Richmond
David Marques
,
European Central Bank

Abstract

Do historical biases attached to geography continue shaping discrimination in the mortgage market? We rely on long-ago-repealed boundaries created in the 1930s to prevent access to mortgage credit to blacks. We combine granular data from the Home Mortgage Disclosure Act (HMDA), which contains detailed information on mortgage applicants—including borrowers’ credit risk—, and geocoded “old” Home Owners Loan Corporation (HOLC) residential security maps, for almost 200 cities.

We compare formerly “red and yellow-lined” neighborhoods suffering from discrimination versus similar adjacent neighborhoods. We find that households located in urban areas that were discriminated in the 1930s still experience harder conditions in their access to credit. These effects are stronger for cities in which minorities are confined in specific suburbs and for lenders from the “shadow” banking system.

Shock Absorbers and Transmitters: The Dual Facets of Bank Specialization

Rajkamal Iyer
,
Imperial College London
Sotirios Kokas
,
University of Essex
Alexander Michaelides
,
Imperial College London
Jose Peydro
,
Imperial College London

Abstract

This paper highlights the dual facets of bank specialization. After negative industry-specific shocks, banks specializing in an affected sector act as shock absorbers by increasing their lending to firms in that sector at lower interest rates than non-specialized banks. This lending is to profitable firms, thus not consistent with zombie lending. However, when there are funding constraints, increased lending to the affected sector by specialized banks is accompanied by a simultaneous cut in lending to unrelated sectors, thereby transmitting the shock. These firms compensate by raising funds externally. However, in tight financing conditions, there are negative real effects.

Collateral Damage: Low-Income Borrowers Depend on Income-Based Lending

Mark Garmaise
,
University of California-Los Angeles
Mark Jansen
,
University of Utah
Adam Winegar
,
BI Norwegian Business School

Abstract

We use negative durability shocks from vehicle discontinuations to study the relative importance of asset-backed lending (ABL) and income-based lending (IBL) in auto finance. Discontinuations lead to increased down payments and loan-to-value ratios. Consumers who default on discontinued cars supply larger personal recoveries. These results all indicate that economically disadvantaged consumers are relatively more reliant on unsecured IBL, which stands in stark contrast to corporate financing patterns. We further show that vehicle recoveries on discontinued cars are lower for those borrowers who purchase after discontinuations, implying that depreciation is partially borrower-dependent. Our findings suggest that the securitization-driven rise of ABL may hamper the relative credit access of IBL-reliant lower-income borrowers.

Cross-Subsidization of Bad Credit in a Lending Crisis

Nikolaos Artavanis
,
Louisiana State University
Brian Jonghwan Lee
,
Columbia University
Stavros Panageas
,
University of California-Los Angeles and NBER
Margarita Tsoutsoura
,
Washington University-St. Louis, CEPR, ECGI, and NBER

Abstract

We study the corporate-loan pricing decisions of a major, systemic bank during the
Greek financial crisis. A unique aspect of our dataset is that we observe both the interest
rate and the “breakeven rate” (BE rate) of each loan, as computed by the bank’s
own loan-pricing department (in effect, the loan’s marginal cost). We document that
low-BE rate (safer) borrowers are charged significant markups, whereas high-BE rate
(riskier) borrowers are charged smaller and even negative markups. We rationalize this
de facto cross-subsidization through the lens of a dynamic model featuring depressed
collateral values, impaired capital-market access, and limit pricing.

Discussant(s)
Diana Bonfim
,
Banco de Portugal, ECB and Católica Lisbon
John C. Driscoll
,
Federal Reserve Board
Bronson Argyle
,
Brigham Young University
Lars Norden
,
Getulio Vargas Foundation
JEL Classifications
  • G2 - Financial Institutions and Services
  • G5 - Household Finance