Big Banks, Household Credit Access, and Intergenerational Economic Mobility

Abstract

Consolidation in the United States 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.

Keywords: Banking, Credit Access, Intergenerational Mobility, Household Finance, Household Debt, Mortgages

JEL Classification: D14, D31, E24, G21, J62