Social Movements and Access to Credit

Abstract

I investigate whether social movements, such as #BlackLivesMatter, affect local loan officers’ mood and consequently, credit approvals at local banks. Motivated by research in psychology, I hypothesize that protests will lead to increased stress levels, inducing negative moods in loan officers and ultimately result in a decrease in banks’ credit approvals. Because both loan officers’ sentiment and their credit decisions are unobservable, to test this prediction I rely on the substitution between P2P lending and traditional banking and expect that borrowers who are unable to secure credit from banks migrate to P2P lending. Utilizing the staggered occurrences of BLM protests, I show that P2P lending significantly increases in areas that experience BLM protests. Additionally, consistent with P2P lending serving borrowers rejected by banks, I find that the increase in P2P lending is driven by low quality borrowers. These effects are stronger for areas that have more single bank branches, are Republican leaning, and have less banking competition. Moreover, my findings suggest that the increase in P2P lending is less likely to be driven by potential alternative explanations, such as an increased demand for credit. Overall, my results suggest that social movements and the related protests may have an adverse effect on the ability of weaker borrowers to access bank credit.

Keywords: Social Movements, Banking, Peer-to-Peer Lending, Mood, Access to Credit

JEL Classification: D14, A12, G21, G23