Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-17T10:41:19.907Z Has data issue: false hasContentIssue false
  • English
  • Français

Big Banks, Household Credit Access, and Intergenerational Economic Mobility

Published online by Cambridge University Press:  29 September 2023

Erik J. Mayer Open the ORCID record for Erik J. Mayer [Opens in a new window]
Erik J. Mayer*
Affiliation:
University of Wisconsin–Madison Wisconsin School of Business
*
erik.mayer@wisc.edu
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Consolidation in the U.S. banking industry has led to larger banks. I find that low-income households face reduced access to credit when local banks are large. This result appears to stem from large banks’ comparative disadvantage using soft information, which is particularly important for lending to low-income households. In contrast, the size of local banks has little or no effect on high-income households. Consistent with low-income parents’ credit constraints limiting investment in their children’s human capital, areas with larger banks exhibit a greater sensitivity of educational attainment to parental income, and less intergenerational economic mobility.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 6 , September 2024 , pp. 2933 - 2969
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

For helpful comments, I thank Alex Butler, Charles Calomiris, Mara Faccio (the editor), Gustavo Grullon, Christoffer Koch, Claire Labonne, Aaron Pancost, Amiyatosh Purnanandam, James Weston, and seminar participants at Rice University, the University of Michigan, Southern Methodist University, Vanderbilt University, the University of Houston, the University of Arizona, and the American University. I also thank conference participants at the 2020 Columbia/Banking Policy Institute Research Conference, the 2020 Community Banking in the 21st Century Research Conference, the 2019 Financial Management Association Meeting, the 2018 Lone Star Finance Conference, and the 2018 Banking and Finance Workshop at the Federal Reserve Bank of Dallas.

References

Aaronson, D. “A Note on the Benefits of Homeownership.” Journal of Urban Economics, 47 (2000), 356–369.CrossRefGoogle Scholar
Agarwal, S.; Ambrose, B. W.; Chomsisengphet, S.; and Liu, C.. “The Role of Soft Information in a Dynamic Contract Setting: Evidence from the Home Equity Credit Market.” Journal of Money, Credit and Banking, 43 (2011), 633–655.CrossRefGoogle Scholar
Agarwal, S.; Benmelech, E.; Bergman, N.; and Seru, A.. “Did the Community Reinvestment Act Lead to Risky Lending?” NBER Working Paper No. 18609 (2012).CrossRefGoogle Scholar
Agarwal, S., and Hauswald, R.. “Distance and Private Information in Lending.” Review of Financial Studies, 23 (2010), 2757–2788.CrossRefGoogle Scholar
Akey, P.; Dobridge, C.; Heimer, R. Z.; and Lewellen, S.. “Pushing Boundaries: Political Redistricting and Consumer Credit.” Working Paper, University of Toronto (2018).CrossRefGoogle Scholar
Akey, P.; Heimer, R. Z.; and Lewellen, S.. “Politicizing Consumer Credit.” Journal of Financial Economics, 139 (2021), 627–655.CrossRefGoogle Scholar
Avery, R. B.; Bilinski, M. F.; Bucks, B. K.; Chai, C.; Critchfield, T.; Keith, I. H.; Mohamed, I. E.; Pafenberg, F. W.; Patrabansh, S.; Schultz, J. D.; and Wood, C. E.. “A Profile of 2013 Mortgage Borrowers: Statistics from the National Survey of Mortgage Originations.” Technical Report (2017)Google Scholar
Bayer, P.; Ferreira, F.; and Ross, S. L.. “What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders.” Review of Financial Studies, 31 (2018), 175–205.CrossRefGoogle Scholar
Beck, T.; Levine, R.; and Levkov, A.. “Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States.” Journal of Finance, 65 (2010), 1637–1667.CrossRefGoogle Scholar
Becker, G. S., and Tomes, N.. “An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility.” Journal of Political Economy, 87 (1979), 1153–1189.CrossRefGoogle Scholar
Becker, G. S., and Tomes, N.. “Human Capital and the Rise and Fall of Families.” Journal of Labor Economics, 4 (1986), S31–S39.CrossRefGoogle ScholarPubMed
Berger, A. N., and Black, L. K.. “Bank Size, Lending Technologies, and Small Business Finance.” Journal of Banking and Finance, 35 (2011), 724–735.CrossRefGoogle Scholar
Berger, A. N.; Bouwman, C. H.; and Kim, D.. “Small Bank Comparative Advantages in Alleviating Financial Constraints and Providing Liquidity Insurance over Time.” Review of Financial Studies, 30 (2017), 3416–3454.CrossRefGoogle Scholar
Berger, A. N.; Miller, N. H.; Petersen, M. A.; Rajan, R. G.; and Stein, J. C.. “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks.” Journal of Financial Economics, 76 (2005), 237–269.CrossRefGoogle Scholar
Berger, E. A.; Butler, A. W.; Hu, E.; and Zekhnini, M.. “Financial Integration and Credit Democratization: Linking Banking Deregulation to Economic Growth.” Journal of Financial Intermediation, 54 (2021), Article no. 100857.Google Scholar
Bhutta, N., and Keys, B. J.. “Interest Rates and Equity Extraction During the Housing Boom.” American Economic Review, 106 (2016), 1742–1774.CrossRefGoogle Scholar
Black, S. E., and Devereux, P. J.. “Recent Developments in Intergenerational Mobility.” In Handbook of Labor Economics, 4th edition, Card, D. and Ashenfelter, O., eds. Amsterdam: Elsevier (2011), 1487–1541.Google Scholar
Blanden, J. “How Much Can We Learn from International Comparisons of Intergenerational Mobility?” Working Paper, Centre for the Economics of Education (2009), 1–45.Google Scholar
Boehm, T. P., and Schlottmann, A. M.. “Does Home Ownership by Parents Have an Economic Impact on Their Children?” Journal of Housing Economics, 8 (1999), 217–232.CrossRefGoogle Scholar
Bord, V. M. “Bank Consolidation and Financial Inclusion: The Adverse Effects of Bank Mergers on Depositors.” Working Paper, Harvard University (2018).Google Scholar
Brown, J. R.; Cookson, J. A.; and Heimer, R. Z.. “Growing Up Without Finance.” Journal of Financial Economics, 134 (2019), 591–616.CrossRefGoogle Scholar
Butler, A. W.; Mayer, E. J.; and Weston, J. P.. “Racial Disparities in the Auto Loan Market.” Review of Financial Studies, 36 (2023), 1–41.CrossRefGoogle Scholar
Carter, D. A., and McNulty, J. E.. “Deregulation, Technological Change, and the Business-Lending Performance of Large and Small Banks.” Journal of Banking and Finance, 29 (2005), 1113–1130.CrossRefGoogle Scholar
Celerier, C., and Matray, A.. “Bank-Branch Supply, Financial Inclusion, and Wealth Accumulation.” Review of Financial Studies, 32 (2019), 4767–4809.CrossRefGoogle Scholar
Cetorelli, N., and Strahan, P. E.. “Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets.” Journal of Finance, 61 (2006), 437–461.CrossRefGoogle Scholar
Chava, S.; Oettl, A.; Subramanian, A.; and Subramanian, K. V.. “Banking Deregulation and Innovation.” Journal of Financial Economics, 109 (2013), 759–774.CrossRefGoogle Scholar
Chetty, R.; Hendren, N.; Kline, P.; and Saez, E.. “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.” Quarterly Journal of Economics, 129 (2014), 1553–1623.CrossRefGoogle Scholar
Cole, R. A.; Goldberg, L. G.; and White, L. J.. “Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks.” Journal of Financial and Quantitative Analysis, 39 (2004), 227–251.CrossRefGoogle Scholar
Cornaggia, J.; Cornaggia, K. J.; and Xia, H.. “College Student Behavior and Student Loan Default.” Working Paper, Pennsylvania State University (2021).Google Scholar
Davies, J. B.; Zhang, J.; and Zeng, J.. “Intergenerational Mobility Under Private vs. Public Education.” Scandinavian Journal of Economics, 107 (2005), 399–417.CrossRefGoogle Scholar
Demsetz, R. S., and Strahan, P. E.. “Diversification, Size, and Risk at Bank Holding Companies.” Journal of Money, Credit, and Banking, 29 (1997), 300–313.CrossRefGoogle Scholar
DeYoung, R.; Glennon, D.; and Nigro, P.. “Borrower-Lender Distance, Credit Scoring, and Loan Performance: Evidence from Informational-Opaque Small Business Borrowers.” Journal of Financial Intermediation, 17 (2008), 113–143.CrossRefGoogle Scholar
Diamond, D. W. “Financial Intermediation and Delegated Monitoring.” Review of Economic Studies, 51 (1984), 393–414.CrossRefGoogle Scholar
Gaviria, A. “Intergenerational Mobility, Sibling Inequality and Borrowing Constraints.” Economics of Education Review, 21 (2002), 331–340.CrossRefGoogle Scholar
Green, R. K., and White, M. J.. “Measuring the Benefits of Homeowning: Effects on Children.” Journal of Urban Economics, 41 (1997), 441–461.CrossRefGoogle Scholar
Haurin, D. R.; Parcel, T. L.; and Haurin, R. J.. “Does Homeownership Affect Child Outcomes?” Real Estate Economics, 30 (2002), 635–666.CrossRefGoogle Scholar
Iyer, R.; Khwaja, A. I.; Luttmer, E. F. P.; and Shue, K.. “Screening Peers Softly: Inferring the Quality of Small Borrowers.” Management Science, 62 (2016), 1554–1577.CrossRefGoogle Scholar
Jayaratne, J., and Strahan, P. E.. “The Finance-Growth Nexus: Evidence from Bank Branch Deregulation.” Quarterly Journal of Economics, 111 (1996), 639–670.CrossRefGoogle Scholar
Kroszner, R. S., and Strahan, P. E.. “Regulation and Deregulation of the US Banking Industry: Causes, Consequences, and Implications for the Future.” In Economic Regulation and Its Reform: What Have We Learned? Rose, N. L., ed. Chicago, IL: University of Chicago Press, (2014), 485–543.Google Scholar
Lee, D., and van der Klaauw, W.. “An Introduction to the FRBNY Consumer Credit Panel.” Federal Reserve Bank of New York Staff Report No. 479 (2010).CrossRefGoogle Scholar
Loutskina, E., and Strahan, P. E.. “Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations.” Journal of Finance, 64 (2009), 861–889.CrossRefGoogle Scholar
Loutskina, E., and Strahan, P. E.. “Informed and Uninformed Investment in Housing: The Downside of Diversification.” Review of Financial Studies, 24 (2011), 1447–1480.CrossRefGoogle Scholar
Mayer, S. E., and Lopoo, L. M.. “Government Spending and Intergenerational Mobility.” Journal of Public Economics, 92 (2008), 139–158.CrossRefGoogle Scholar
Mazumder, B. “Fortunate Sons: New Estimates of Intergenerational Mobility in the United States Using Social Security Earnings Data.” Review of Economics and Statistics, 87 (2005), 235–255.CrossRefGoogle Scholar
Minton, B. A.; Taboada, A. G.; and Williamson, R.. “Bank Mergers, Acquirer Choice and Small Business Lending: Implications for Community Investment.” NBER Working Paper No. 29284 (2021).CrossRefGoogle Scholar
Munnell, A. H.; Tootell, G. M. B.; Browne, L. E.; and McEneaney, J.. “Mortgage Lending in Boston: Interpreting HMDA Data.” American Economic Review, 86 (1996), 25–53.Google Scholar
Petersen, M. A., and Rajan, R. G.. “Does Distance Still Matter? The Information Revolution in Small Business Lending.” Journal of Finance, 57 (2002), 2533–2570.CrossRefGoogle Scholar
Rice, T., and Strahan, P. E.. “Does Credit Competition Affect Small-Firm Finance?” Journal of Finance, 65 (2010), 861–889.CrossRefGoogle Scholar
Rupasingha, A.; Goetz, S. J.; and Freshwater, D.. “The Production of Social Capital in US Counties.” Journal of Socio-Economics, 35 (2006), 83–101.Google Scholar
Solon, G. “A Model of Intergenerational Mobility Variation over Time and Place.” In Generational Income Mobility in North America and Europe, Corak, M., ed. Cambridge: Cambridge University Press, (2004), 38–47.CrossRefGoogle Scholar
Stein, J. C. “Information Production and Capital Allocation: Decentralized Versus Hierarchical Firms.” Journal of Finance, 57 (2002), 1891–1921.CrossRefGoogle Scholar
Stiglitz, J. E., and Weiss, A.. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 71 (1981), 393–410.Google Scholar
Strahan, P. E., and Weston, J. P.. “Small Business Lending and the Changing Structure of the Banking Industry.” Journal of Banking and Finance, 22 (1998), 821–845.CrossRefGoogle Scholar
Supplementary material: PDF

Mayer supplementary material

Mayer supplementary material

Download Mayer supplementary material(PDF)
PDF 965.4 KB