(5/14): Charlotte Haendler

Cox School of Business, Southern Methodist University

Keeping Up in the Digital Era: How Mobile Technology Is Reshaping the Banking Sector 

I use new hand-collected data on banks' mobile apps to analyze how financial services digitalization has changed traditional banking. I show that small community banks (SCBs) have been slow to provide mobile banking apps compared to larger banks (LBs). As a result, they have lost both deposits and small business lending. In contrast, LBs have gained deposits and small business loans by substituting SCBs' traditional branch- and relationship-based model with financial technology. However, this substitution appears incomplete, as I show that the local economy benefits less from digital progress in areas that relied more on SCBs beforehand.

(3/5): Lu Liu 

The Wharton School, University of Pennsylvania

Mortgage Lock-In, Mobility, and Labor Reallocation 

We study the impact of rising mortgage rates on mobility and labor reallocation. Using individual-level credit record data and variation in the timing of mortgage origination, we show that a 1 p.p. decline in mortgage rate deltas (∆r), measured as the difference between the mortgage rate locked in at origination and the current market rate, reduces moving rates by 0.68 p.p, or 9%. We find that this relationship is nonlinear: once ∆r is high enough, households’ alternative of refinancing without moving becomes attractive such that moving probabilities no longer depend on ∆r. Lastly, we find that mortgage lock-in attenuates household responsiveness to shocks to nearby employment opportunities that require moving, measured as wage growth in counties within a 50 to 150-mile ring and instrumented with a shift-share instrument. We provide causal estimates of mortgage lock-in effects, highlighting unintended consequences of monetary tightening with long-term fixed-rate mortgages on mobility and labor markets. 

(3/19): Kyle Zimmerschied

Trulaske College of Business, University of Missouri

Diversifying Labor Income Risk: Evidence from Income Pooling 

This paper studies the effects of a contracting innovation which allows individuals to diversify their labor income risk by sharing labor income above a ceiling into a common pool. I use novel data from professional baseball players to document sign-up correlated with an individual’s level of downside protection and sophistication. Players are significantly more likely to experience an injury before expressing interest in the contract and are drafted in later rounds. I find some evidence of productivity declines following sign-up with an instrumental variables approach built around peer networks confirming these results. Increased monitoring proxied for by players pooling with teammates reduces the likelihood of players experiencing a decline in performance after pooling. Players contract with others of similar ability, backgrounds, and occupations to mitigate information asymmetries. These results provide real-world evidence of the ability of individuals to hedge labor income risk through peer contracting. 

(4/2): Agustin Hurtado

Smith School of Business, University of Maryland

Paper 1: The Effect of Minority Bank Ownership on Minority Credit

We construct the first matched data on bank ownership, employees, and mortgage borrowers to study the effect of racial minority bank ownership on minority credit. We address previous missing data and measurement error issues by introducing numerous novel sources and tools. Using our newly constructed data, we present four findings. First, minority-owned banks specialize in same-race mortgage lending. Almost 70 percent of their mortgages go to borrowers of the same race as their owners. Second, the effect of minority bank ownership on minority credit is large and exceeds that of minority loan officers. We find that minority borrowers applying for mortgages at banks whose owners are of the same minority group are nine percentage points more likely to be approved than otherwise identical minority borrowers at nonminority banks. This effect is over six times that of a minority loan officer. Third, evidence from plausibly exogenous bank failures suggests that the effect of minority bank ownership might reflect an expansion rather than a reallocation of credit to minorities. Fourth, the within-bank default rate of same-race borrowers is much lower than that of otherwise-identical borrowers of other races at minority banks. These findings are consistent with minority bank ownership reducing information asymmetry and inconsistent with owners' preferences driving the observed effects on minority credit. The evidence is also consistent with an organizational phenomenon, suggesting that the effect of banks' organizational culture and design on minority credit might outweigh that of banks' individual employees.

(4/16): William Bazley

School of Business, University of Kansas

Discrimination and Preference Primitives

We investigate the impact of perceived social discrimination on U.S. households’ preferences, specifically focusing on key aspects of prospect theory. Utilizing both field and experimental data, we find that perceiving discrimination increases risk tolerance, decreases loss aversion, and excessively distorts objective probabilities. These effects are primarily observed in racial/ethnic minorities, with no significant impact on White individuals. Emotional factors, particularly anger, play a role in transmitting the effects of discrimination on preferences. Overall, our findings underscore how social factors, such as discrimination, can systematically shape fundamental preferences, ultimately influencing economic decision making.

(4/30): Jacelly Cespedes

Carlson School of Management, University of Minnesota

Branching Out Inequality: The Impact of Credit Equality Policies

We uncover that the Community Reinvestment Act (CRA), a major policy aimed to reduce geographic inequality in credit access, can widen disparities across regions, despite enhancing credit equality within certain regions. This adverse effect arises because banks withdraw branches from economically disadvantaged areas to sidestep the rules. As financial activities shift towards shadow banks, the adverse impact of the CRA is amplified, expanding the set of disadvantaged areas suffering from branch withdrawals. Using a regression discontinuity design centered on a CRA eligibility threshold, we estimate banks' shadow costs of violating the CRA. We then show that banks with higher costs of CRA violation retract their branches from disadvantaged areas following the expansion of shadow banks. This retraction results in declines in small business lending, business establishments, and employment, predominantly in low-income neighborhoods within these disadvantaged regions. Such dynamics could contribute to the worsening cross-region disparities in credit access observed over the recent decade.