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Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods

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Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. This paper provides evidence in support of this argument in the mortgage market for low-income borrowers whose access to credit is limited by their inadequate credit histories. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low- to moderate-income neighborhood.

Keywords: D82; G21; G28; R31; branch presence; mortgage market; relationship lending

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1538-4616.2010.00343.x

Affiliations: Ozgur Emre Ergungoris a Senior Research Economist, Research Department, Federal Reserve Bank of Cleveland (: )., Email: ozgur.e.ergungor@clev.frb.org

Publication date: October 1, 2010

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