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Culture and Conduct

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Cortez Hills C
Hosted By: International Banking, Economics, and Finance Association
  • Chair: Jens Christensen, Federal Reserve Bank of San Francisco

Distance in Bank Lending: The Role of Social Networks

Oliver Rehbein
,
University of Bonn
Simon Rother
,
University of Bonn

Abstract

We analyze the role of social connections in bank lending, using county-to-county friendship-link data from Facebook. Strong social ties increase loan volumes. This effect is distinct from physical distance, which becomes significantly less relevant when accounting for social ties, and from cultural differences, for which we introduce a new measure at the county-pair level. The effect of social connectedness is supply-side driven and particularly large for small banks but demand-side driven for large banks. Less information-sensitive loans are significantly less affected by social connectedness. To bolster identification, we exploit highway connections, historical travel costs, and the quasi-random staggered introduction of Facebook across the US as instruments. Our results reveal the important role of social connectedness as an informal information channel, speak to the nature of borrowing constraints, and have implications for bank-lending and anti-trust policies.

Spillover Effects of the Opioid Epidemic on Consumer Finance

Mark Jansen
,
University of Utah

Abstract

I examine the impact of the opioid epidemic on subprime auto lending. Using a difference-in-differences framework, I find that county-level increases in opioid abuse cause an increase in loan defaults. Moreover, I find that traditional credit scoring attributes (e.g., FICO score) fail to predict loan performance deterioration associated with opioid addiction. The resulting higher default rates and weaker predictive performance of traditional credit measures generate a negative externality for borrowers in opioid-afflicted areas, as evidenced by 4.4% higher loan costs for subprime borrowers.

The Impact of Organizational Downsizing on Loan Officer Specialization and Credit Defaults

Michael Goedde-Menke
,
University of Münster
Peter-Hendrik Ingermann
,
University of Münster

Abstract

This paper studies how organizational downsizing in a bank affects loan officer specialization and the credit default risk of small and medium-sized enterprises. We exploit a wave of early loan officer retirements as a quasi-natural experiment, in which the resulting borrower reallocations exogenously changed the industry specialization levels of the remaining loan officers. In a difference-in-differences analysis excluding all reallocated borrowers, we find that a negative shock to loan officer specialization causes a stronger increase in default rates due to excessive loan growth induced by less accurate default risk information. A positive shock to loan officer specialization generates opposite effects.
Discussant(s)
Mikael Homanen
,
City University of London
Paige Ouimet
,
University of North Carolina-Chapel Hill
Michael Koetter
,
Halle Institute for Economic Research
JEL Classifications
  • G2 - Financial Institutions and Services
  • D1 - Household Behavior and Family Economics