Bank Branch Presence and Access to Credit in Low-to-Moderate Income Neighborhoods
Posted: 26 Jul 2010
Date Written: June 11, 2007
Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. This paper provides evidence in support of this argument in the mortgage market for low-income borrowers whose access to credit is limited by their inadequate credit histories. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.
Keywords: relationship lending, mortgage market, branch presence
JEL Classification: D82, G21, G28, R31
Suggested Citation: Suggested Citation