Is George Bailey Dead?
As consolidation, deregulation, and technological advances transform the financial services industry, it is generally believed that community banks provide relationship-based banking services for small businesses, family farmers, and depositors of low to moderate wealth. Using data from actual loan applications to a rural community bank (not too dissimilar to It's A Wonderful Life's 'Bailey Building and Loan Company’ in Bedford Falls), the role of relationship lending in the market for home mortgages is examined for a financial institution with a long-perceived tradition of character lending. No evidence is found that prior account holders are given any advantage in the approval process for a home loan. Nearly all of the loan decisions are based on objective criteria such as personal wealth, debt obligations, and credit score. This has obvious implications for historically underserved consumers who are often rationed out of a credit market that allocates loan funds based solely on credit scoring techniques.
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Volume (Year): 3 (2007)
Issue (Month): 1 (January)
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References listed on IDEAS
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- Jessica Holmes & Jonathan Isham & Jessica Wasilewski, 2004. "Overcoming Information Asymmetries in Low-Income Lending: Lessons from the 'Working Wheels' Program," Middlebury College Working Paper Series 0244r, Middlebury College, Department of Economics.
- Orazio P. Attanasio & Pinelopi Koujianou Goldberg & Ekaterini Kyriazidou, 2008.
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- William Keeton, 2003. "The role of community banks in the U.S. economy," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 15-43.
- Jessica Holmes & Jonathan Isham & Ryan Petersen & Paul Sommers, 2005. "Does Relationship Lending Still Matter in the Consumer Banking Sector? Evidence from Two Financial Service Organizations in Vermont," Middlebury College Working Paper Series 0511, Middlebury College, Department of Economics.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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