Should Old Folk Really Smile All the Way to the Bank? How Population Aging Relaxes Bank Lending Standards
49 Pages Posted: 5 Aug 2019 Last revised: 12 Jan 2022
Date Written: January 6, 2022
Abstract
Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.
Keywords: Risk-taking, financial stability, low interest rates, population aging, demographics
JEL Classification: G21, E51
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