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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
*
[email protected]
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Abstract

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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.

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