Finance and inequality: The distributional impacts of bank credit rationing

Ali Choudhary and Anil Jain

Journal of Financial Intermediation, 2022, vol. 52, issue C

Abstract: We analyze reductions in bank credit using a natural experiment where unprecedented flooding in Pakistan differentially affected banks that were more exposed to the floods. Using a unique data set that covers the universe of consumer loans in Pakistan and this exogenous shock to bank funding, we find two key results. First, following an increase in their funding costs, banks disproportionately reduce credit to borrowers with little education, little credit history, and seasonal occupations. Second, the credit reduction is not compensated by relatively more lending by less-affected banks. The empirical evidence suggests that a reduction in bank monitoring incentives caused the large relative decreases in lending to these borrowers.

Keywords: Credit markets; Capital; Liquidity; Financial stability; Inequality; Adverse selection; Relationships (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Finance and Inequality: The Distributional Impacts of Bank Credit Rationing (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:52:y:2022:i:c:s104295732200050x

DOI: 10.1016/j.jfi.2022.100997

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